Inflation may hit 1.4% next year

PRICES are expected to continue rising and could be up as much as 1.4% annually by the end of 2011.

Figures from the Central Statistics Office (CSO) show consumer prices were up 0.7% last month and up 0.2% in the year, the first annual increase in the rate of inflation since December 2008.

The increase was driven by a 10% hike in mortgage interest costs, which are now up just over 24% in the year. Cutting out the mortgage component, prices rose by a more modest 0.2% monthly.

Having peaked at -6.6% last October, the August consumer price index showed deflation at least now appears to be over.

Economist with employers group IBEC, Reetta Suonpera, said price levels are likely to remain below the 2008 peak until 2013.

She said, however, that Ireland needs to become more competitive.

“Although Ireland has made headway in improving its competitiveness, prices in some sectors remain too high and need to fall back in line with those of our competitors.”

Bloxham expect headline prices to be down 0.8% on average this year and up 1.4% in 2011.

Last month, clothes prices jumped 4.2%, air travel was up almost 17% and insurance was up 0.5%. In the year, insurance premiums are now up almost 7%. Food costs were down 0.2% bringing their yearly drop to 3.3%.

Director of the Small Firms Association Avine McNally said: “The most worrying aspect is that inflation is being driven by increases in public utility costs, such as education, housing, water, electricity, gas and transport, and these costs are daily input costs for businesses.”

Bloxham chief economist Alan McQuaid said: that looking at the figures minus mortgageinterest relief they show Ireland is now only one of two countries within the 27-member bloc, along with Latvia to still be in deflationary territory.

“This should be no surprise given they were the two countries in the EU to implement severe wage/ price reductions across the board. While Ireland needs to make significant downward wage/price adjustments to become more competitive and return the economy to sustainable growth, the last thing we need is to get stuck in a deflationary spiral like Japan, which will do more damage than good in the medium-to long-term.”