Sales help to ease inflation

Conor Keane, Business Correspondent

The Consumer Price Index decreased by 0.8% in January according to figures released by the Central Statistics Office (CSO) to give an annual rate of inflation of 2.3% and some commentators believe this could fall to as low as 2% later in the year.

This compares with a decrease of 0.5% in January of last year and as a result the annual rate of inflation fell to 2.3%, down from 2.6% in December.

The EU Harmonised Index of Consumer Prices (HICP), used to compare inflation across Europe, fell by 1.0% in the month, compared with a decrease of 0.6% in January 2004.

The annual rate of inflation as measured by the HICP fell from 2.4% in December to 2.1% in January, in line with the EU average.

The biggest price drop in January was in the clothing and footwear category down 15.1% but there were large increases in health (+3.3%) and housing, water, electricity, gas and other fuels (+1.0%).

While businesses welcomed the fall in prices the director of the Small Firms Association Pat Delaney is furious at increases in local authority charges, up more that 20% in January.

“Water, waste, electricity, gas and fuel are now the key drivers of inflation. It is crucial that the Government pursue a more rigorous, efficient and equitable means of delivering public services by means of faster and deeper deregulation.

“In the area of waste alone, local authorities act as a regulator, planner, provider and price fixer, and business have no options because no legal alternatives are available. The grossly inflated cost and inefficient delivery of local authority services must be tackled.”

IIB Bank chief economist Austin Hughes said the feature of the January inflation figures is continuing evidence of intense pressure on retailing price discounts with post-Christmas sales discounts larger than a year ago. “The emergence of new entrants to the retailing market is probably a more critical influence. A great price sensitivity on the part of Irish consumers may also be at play,” he said.

Mr Hughes thinks inflation will average about 2.3% in 2005 with rising mortgage rates likely to deliver a higher end-year figure.

In contrast Goodbody Stockbrokers’s economists Dermot O’Leary and Phillip O’Sullivan are forecasting an average rate of inflation of 2% in 2005, driven by a decline in energy prices before the year-end, the impact of favourable currency movement and price pressures in the retail sector.