Soaring fuel prices drive up inflation

SOARING fuel prices have added to the cost of living, with inflation rising to by 0.3% to 2.4% in July.

New figures from the Central Statistics Office (CSO) show the cost of petrol, diesel and home heating oil have all increased in the past 12 months.

The cost of petrol is 27% higher than a year ago, diesel 15.2% higher and electricity is up by 13.5%.

IBEC’s chief economist David Croughan said Exchequer revenue was gaining some €100 million in additional VAT because of higher pump prices for petrol and diesel.

“Government should contribute to reducing inflation and the costs to industry by channelling this windfall into a reduction in excise duties on oil products,” he said.

Davy Stockbrokers economist Robbie Kelleher said: “Usually, the price level falls in July as the impact of summer sales feeds through. But even though clothing and footwear prices dropped 10% month on month, higher energy costs from the recent oil price spike negated the sales impact.”

With oil continuing to hit record prices it is likely inflation will continue to rise. Mr Kelleher estimated it would rise by 0.1% this month.

“Whether more will follow in September and October largely depends upon whether oil stays at its current price of close to $65. Inflation may now average 2.5% for the full year; in the first seven months it averaged 2.3%,” he added.

Consumers face a double blow next month with a 2.5% rise in electricity prices and a 25% hike in gas charges sanctioned by the energy regulator.

Mark Fielding, chief executive of the small business group ISME, said though the Government can do little to influence international oil prices, it does have the power to stop price increases being granted to the ESB and Bord Gais and to implement initiatives to increase the usage of alternative energy such as biofuel, solar and wind energy.

“The Government should immediately introduce a national energy policy to incentivise and promote alternative sources of energy to alleviate the impact of future oil prices on inflation,” he said.

Outside of energy costs, food prices rose by 0.3% in July, but are down 0.6% from a year ago. Clothing prices fell 10.3% in July as the annual summer sales picked up; prices are down by more than 1% since July 2004.

Mr Kelleher added: “Outside of energy products and mortgages, inflation is low. Energy has added 0.8 percentage points to the annual rate in the year to July.

“Mortgages added 0.5 percentage points, in spite of stable interest rates, as loans on higher priced properties enter the basket.

“Strip out energy and mortgages, which combined only make up 11% of the index, and the rest of it rose only 1.1% in July compared with a year earlier.”