Inflation drops to lowest level in four years

INFLATION fell to its lowest level in nearly four years in September.

According to figures published by the Central Statistics Office yesterday, September’s Consumer Price Index fell from 3.2% in August to 2.9%, the lowest annual CPI reading since November 1999.

Economists said a slowdown in the price of food and motor insurance were the main reasons for the decline. Austin Hughes, chief economist with IIB Bank said the September figures show inflation is benefiting from a price war between food retailers.

“The most striking feature of the September rate was the fall in food price inflation to 0.8% from 1.3% in August,” Mr Hughes said.

“A year ago, food price inflation was rising by about 4%. So the slowdown in this key area is of great benefit to household spending power and seems to owe a great deal to intensive price discounting in the wake of the entry of new retailers such as a Aldi and Lidl to the Irish marker,” he added.

Offsetting the fall in food prices were increases in the cost of health, energy and education.

Mr Hughes said he expects inflation to come down in the coming months and this would have wider implications for the economy in the form of sluggish tax revenues. “In the absence of budget tax increase we reckon that Irish inflation would not be too far above 2% in the final months of the year and could average 2% in 2004,” he said.

“Although we think a relatively low inflation rate is of great importance to this economy, we’re not sure whether an inflation rate of 2% would encourage a dramatically better economic performance than a rate of 2.5%.”

He added that he expects Finance Minister Charlie McCreevy to raise around 400 million from indirect taxes in December’s budget.

The Government yesterday welcomed the drop in inflation. Minister of State at the Department of Taoiseach Mary Hanafin

said it was an “important indicator that the relative competitive base of the economy is being consolidated toward the promotion of enterprise, investment and overall economy growth”.

But Fine Gael finance spokesman Richard Bruton said the fall was due to competition in the private sector. “The private sector are playing their part in keeping inflation figures down but the Government are pulling the rug out from under private companies, particularly exports with hikes in indirect taxing and increases in charges,” Mr Bruton said.