Inflation could rise to 5.1%

INFLATION could hit a seven-year high this year, as the latest figures reveal a hike in air fares, petrol prices and home-heating oil pushed it to 5% last month.

This is up from 4.9% in May and 3.7% over the same period last year.

Economists said yesterday it could now hit 5.1% by year end, which would be the highest since 2000.

Chief economist with Ulster Bank Pat McArdle said: “The July outcome was a surprise as the consensus forecast according to a Reuters survey of seven economists was 4.8% which was also our own expectation. Inflation is remaining stubbornly at about 5% — the CPI rate has been 5% or above in five of the first seven months of 2007.

“Little surprise then that we expect the average for the year to be around 5%, in fact, there is now a danger that the average will be 5.1% which would be the highest rate since 2000 when it was 5.6%.”

He said it’s likely the high for the year will come in autumn.

The CSO figures showed the main monthly changes in July were increases in mortgage interest payments while air fares, petrol prices and home-heating oil also rose in the month.

Clothing and footwear and household durable goods prices were down on June as a result of the summer sales. But inflation in Ireland is still close to the highest in the eurozone, according to Goodbody stockbrokers.

“With detailed country data available only to June, it appears the pace of price increases in Ireland is eclipsed only by Slovenia, reinforcing Ireland’s unwanted position as one of the most expensive countries in Europe,” said a Goodbody economist.

ISME and the Small Firms’ Association said the Government needs to immediately address what they call the unacceptably high level of inflation. SFA chairman Pat Crotty said: “The rise in the inflation figure for July to 5% is damaging to individuals, to businesses and to the economy.” He said preliminary analysis from the SFA business cost survey 2007 shows inflation as second only to labour costs, with 77% of small firms citing it as a major business problem.

Alan McQuaid of Bloxhams Stockbrokers said that with the euro at record highs, life is becoming more difficult for Irish exporters and the last thing they need is high inflation.