Irish cost of living records sharpest fall across Europe

IRELAND recorded the sharpest drop in the cost of living across Europe last month.

Based on a European measure of inflation, which excluded mortgage interest relief prices fell by 1.7% in Ireland in May.

The next biggest drop in prices was seen in Portugal, where the cost of living fell by 1.2%.

The highest inflation rates were recorded in Romania (5.9%), Lithuania (4.9%) and Latvia (4.4%).

When averaged, Europe’s inflation rate dropped to zero in May as energy costs retreated and the global economic slump forced companies to lower prices.

Inflation in the economy of the 16 euro-area nations is at the lowest level since the data were first compiled in 1996 and is down from 0.6% in April.

European labour costs rose 3.7% in the first quarter from a year earlier, a separate report showed.

Economist Christoph Weil said: “We’ll see negative inflation rates over the coming two months followed by a gradual return to positive territory toward year end.

“In the short term, low capacity utilisation will keep prices under pressure, but it won’t end up in deflation.”

The European Central Bank (ECB) lowered its inflation forecast for this year to about 0.3% from 0.4% earlier this month. In 2010, euro-area inflation may average 1%, staff projections showed. The ECB aims to keep inflation just below 2%.

Recently released figures by the Central Statistics Office (CSO) show the rate of inflation in Ireland, which includes mortgage interest relief, has fallen by 4.7% in the year to the end of May – the most since 1933.

Clothing prices are down 11% in the year to May and shoe prices are down 10%. However, education costs are up 4.5% and health costs are up 3.5%.

Employers group IBEC expects inflation in Ireland to average about minus 5% for 2009.

Meanwhile, British inflation slowed less than economists forecast in May after higher taxes and the weakness of the pound sustained price pressures in the economy.

Consumer prices rose 2.2% from a year earlier, compared with 2.3% in April, the Office for National Statistics said.