Inflation in first fall for four months

A SLIGHT drop in consumer prices, particularly mortgage costs and the price of food and clothing, pushed the annual rate of inflation down to 2.5% in December, the first time in four months that inflation slowed.

That figure, as outlined in yesterday’s latest Consumer Price Index (CPI) from the Central Statistics Office (CSO), was down from a rate of 2.9% measured in November. Overall, consumer prices fell by 0.3% in December, compared with a rise of 0.2% in the same month in 2010. The drop was, however, the sharpest monthly drop in nearly two years and it is expected that the slowdown in the economy will lead to further downward trends.

“Clearly, a lot depends on how severe the global economic downturn is, but we now think Ireland’s headline inflation rate may average no more than 1.5% in 2012,” commented Alan McQuaid, chief economist with Bloxham Stockbrokers.

“Domestic inflationary pressures are likely to remain subdued for some time to come. Continued weak consumer demand will put downward pressure on prices in the coming months, though the indirect tax changes, announced in Budget 2012, will add to the CPI,” he added.

According to Juliet Tennent, an economist with Goodbody Stockbrokers: “The easing in inflationary pressure in December is in line with the trend in the euro area, where the annual rate fell to 2.7% in December from 3% in November. However, the 2% increase in VAT introduced in January will put upward pressure on prices in the short term. However, we expect price pressures in 2012 to be less than in 2011.”

Mortgage interest costs fell by 3.2% in December and by 2.9% in the final quarter of 2011; but were still up by over 14% over the 12 months. Elsewhere, December’s statistics showed a 1.1% drop in the cost of clothing and footwear, a 1.4% fall in household utility costs, and a marginal fall in transport costs (mainly due to a fall in the price of second-hand cars and petrol).

“ECB rate cuts and oil price reductions are now bearing down on the CPI inflation rate. Underlying inflationary pressures remain weak, with the bulk of the 2.5% CPI inflation accounted for by energy and mortgage relief,” said Conall MacCoille, chief economist with Davy Stockbrokers.