Inflation soars to two-year high

INFLATION hit a two-year high last month as higher oil prices and heftier mortgage burdens began to bite, new figures show.

The Central Statistics Office (CSO) said yesterday the annual inflation rate soared to 3% in September, up from 2.3% in August. Average prices rose by nearly 1% in September alone.

Economists said the increase was higher than had been expected and presented a danger that the economy would become caught up in a spiral of higher wage demands and higher prices. Some warned of the threat of higher interest rates and higher mortgage payments if the European Central Bank moved to counter inflation across Europe with a rate hike in the near term.

The CSO said the inflation spike was mainly down to higher oil prices that pushed up the cost of petrol, heating, electricity and gas. Prices in these categories were an average of 11.1% higher than this time last year. The CSO also blamed higher average mortgage interest repayments, which have increased in line with bigger mortgages to cope with runaway house prices.

Education costs were 6.8% higher year-on-year, healthcare was 6.6% more expensive, while the cost of transport grew by 6.4% over the last 12 months. Prices in the clothing and footwear category bounced back after the summer sales came to an end, rising by 3.6% during September. But they were still 2.4% lower on average than a year ago. Increases in health insurance costs also helped bump up the overall average, however.

Davy Stockbrokers head of research Robbie Kelleher said inflation was set to move higher even if oil prices stabilised at their current levels. He predicted the average inflation rate would be in the region of 3.3% by the end of the year.

IIB Bank chief economist Austin Hughes said rising inflation would dampen consumer spending and warned of a knock-on effect when the next national pay deal comes up for negotiation. “A poorer headline inflation figure may encourage further “pre-emptive” price pressures in the months ahead,” he said.

“We had expected a significant increase in the headline rate of inflation last month, but our prediction proved to be a month early,” said Goodbody Stockbrokers economist Dermot O’Leary.