Workers should not expect pay increases, warns ISME

WORKERS have been told they can forget about wage increases this year as the rate of inflation drops to -1.7%.

Small business group ISME said the drop in inflation must be reflected in lower wages and lower business costs.

Employers group IBEC also said it is vital that the reduced cost of living is central to the debate on wages, prices and costs.

“It is important that workers faced with nominal wage cuts this year, recognise that the substantial drop in prices will help cushion the impact of lower pay,” said IBEC senior economist Fergal O’Brien.

The rate of inflation fell to -1.7% last month from a year earlier — its lowest level since 1960.

Bloxham economist Alan McQuaid said however an extended period of deflation would be damaging for the Irish economy.

“What makes deflation such a dreaded condition is that, once it takes hold, it motivates consumers to hold back on spending and the expectation that they will be able to buy things at a cheaper price later.”

He said this causes a further drop in demand leading to more cutbacks in production and even slower economic activity, which could result in more job losses.

Goodbody analyst, Deirdre Ryan said the declining prices must be welcomed.

“The ongoing declines in the consumer price index will be very much welcomed,” she said.

Increases in the year were seen in food and non-alcoholic beverages which were up 0.8% and clothing and footwear up 11%. However rents are down 13.3% and petrol is down 12%.

Ulster Bank chief economist, Pat McArdle said: “With further mortgage rate cuts already in the pipeline and the ECB signalling their intention to cut base rates yet again, the CPI is set to fall sharply in the coming months.