Consumer prices see 0.9% rise

Consumer prices rose by 0.9% in February, representing the first monthly increase since last October.

However, the annual rate of inflation was largely unchanged — going from 2.2% in January to 2.1% last month. Ireland’s inflation rate, though, has fallen steadily from a high of 3.2% last April.

“This is a welcome relief for the Irish consumer, despite the recent VAT rise. However, the continued inflation in the important household and energy and transport sectors will put pressure on households.

“This week’s CSO survey of household expenditure indicated the share of household income reserved for housing and energy-related costs has increased,” noted David McNamara of Davy Stockbrokers.

Indeed, education and energy (water, electricity, gas and other fuels) costs were the biggest price increases, on a year-on-year basis, in February, up by 9.4% and 5.8% respectively. On a monthly basis, energy costs were down by 0.4%, while clothing/footwear costs were up by over 8% and transport rose by nearly 3%.

Julie Tennent, economist with Goodbody Stockbrokers, said that increases in VAT and energy prices are likely to be offset by weak domestic demand, but “a prolonged increase in energy prices poses an upside risk to headline inflation.”

Despite mortgage interest costs falling again due to ECB interest rate reductions being passed on by the banks, Bloxham Stockbrokers said the outlook remains mixed, and February’s figures from the CSO were worse than they anticipated.

Bloxham chief economist Alan McQuaid said that domestic inflationary pressures are likely to remain subdued for some time to come — weak consumer demand continuing to put downward pressure on prices — and, externally, the main risk will remain energy prices, “which could remain elevated for a while, due to geopolitical worries”.

Mortgage holders are unlikely to benefit from more rate cuts, Mr McQuaid said, adding that, taking everything into account, “and despite the higher-than-expected headline inflation rate in February, we still feel that inflation will be lower on average this year than in 2011”.