Annual inflation rate rises to 2.2%

The annual inflation rate hit 2.2% in March (its highest level in four years) as consumer prices rose for the second month.

Latest monthly figures from the CSO show consumer prices rose by 1% last month, following on from a 0.9% increase in February. That change pushed the annual rate of inflation up to 2.2% in March, slightly up on 2.1% in February.

Last month’s monthly price increases were mostly evident in the areas of transport (up 4%) and clothing/footwear (up by 2.7%); but there were also strong year-on-year rises in the cost of things like education — up nearly 10% on the same period last year — transport and energy. Health insurance costs were also up by 6.3% in the month and by 14% on an annualised basis.

Davy Stockbrokers warned that the latest figures suggest price pressures in the economy are stronger than anticipated and that sustained inflationary pressure will spell bad news for Irish consumer spending.

“Stronger inflation will eat into households’ real incomes already under pressure from weak nominal pay growth and budgetary measures,” said Davy’s chief economist, Conall MacCoille.

Goodbody Stockbrokers’ Dermot O’Leary noted that not only is March’s reading the highest annualised rate since 2008, but Ireland is no longer lower than the eurozone average. “From the point of view of competitiveness, productivity and producer costs are more important. The rise in inflation in certain areas is, however, a drag on household real disposable income.”

Eurozone inflation jumped from 1.6% to 2.2% in March, totally eroding the difference between the Irish rate and the rest of Europe, which stood at a 4% gap only two years ago. That rise should sound “a warning bell” to the Government, IBEC said.

“Recent Government decisions are now adding considerably to inflation,” said Reetta Suonpera, economist with IBEC.

She added: “Throughout the crisis, Ireland’s inflation has been one of the lowest in the eurozone, allowing a significant improvement in competitiveness. This is needed to ensure Irish companies can compete successfully and create new jobs. In just one month, however, the differential has narrowed from over one percentage point to just 0.4%. It is crucial that Government decisions do not undo the efforts of the private sector to restore Ireland’s competitive position.”