Lower food and clothing prices bring inflation to lowest level in six months

LOWER food and clothing prices pushed inflation to its lowest level in six months, falling from 5% in June to 4.4% last month.

The fall was greater than most economists had predicted and was attributed largely to a slowdown in consumer spending.

In recent months, retailers and garages have found themselves with higher- than-expected stock levels and have been forced to cut prices aggressively to entice buyers into the shops or on to the forecourts, according to IIB chief economist Austin Hughes.

“Although bad weather may have contributed to poor sales of summer clothing, and changes in vehicle registration tax appears to have helped ease car prices, there is little doubt that the news in [the] figures is that weaker consumer demand is beginning to lead to softer prices,” he said.

Easing prices at restaurants and hotels helped the rate of inflation last month. The price of accommodation fell by 0.3% in July, which was the first fall in July in the 11-year history of the monthly CPI series.

“Restaurant prices were also soft, rising by 0.2% versus an average July rise of 0.5% over the past five years. Again, it appears that the softer economy, not to mention the poor tourist season, is having an impact,” said Ulster Bank chief economist Pat McArdle.

Most analysts believe the recent softening of oil prices will help dampen Irish inflation over the remainder of this year — despite scheduled increases in electricity and gas prices.

Mr Hughes expects Irish inflation to average about 4.5% in 2008 and drop close to 3% next year while Mr McArdle expects inflation to stay about 5% for a few months before falling back.

Analysts have also welcomed the recent collapse of the pay talks.

Davy economists Rossa White said: “There is no basis whatsoever for wage increases in the face of the rapid deterioration in the labour market, where the unemployment rate will soon be above 6%. It is time to let the public sector deal directly with the government on pay and employment levels (none of the job losses so far are in that sector) and leave the private sector to respond to market forces. Bargaining power for unions in the middle of a recession is pretty minimal.”

Alan McQuaid of Bloxhams said that it would be foolish for the Irish government to be factoring in a continuation of high inflation over the next 12 to 18 months when it comes to the national wage talks.

The annual rate of inflation, based on a European Union measure which excludes mortgage interest costs slowed to 3.6% from 3.9% in June, according to the figures released by the Central Statistics Office.