Low demand set to ‘contain’ inflation

Weak consumer demand is expected to contain Irish inflation in the coming months with global energy and food prices the only risks to increasing the cost of living for Irish consumers.

The Central Statistics Office yesterday said prices in April, as measured by the Consumer Price Index, remained unchanged in the month. Prices also showed no change in April of last year. Prices on average, as measured by the CPI, were 0.5% higher in April compared with Apr 2012.

Merrion Stockbrokers economist Alan McQuaid said domestic inflationary pressures in Ireland are likely to remain depressed for some time to come.

Mr McQuaid said the continued weak consumer demand will put downward pressure on prices in the months ahead.

“The austerity measures announced in Budget 2013, in particular the residential property tax, will again hit disposable incomes, which in turn will weigh negatively on spending power. The main risk on the inflation front this year will once more come from the external side, and in particular the price of energy and food on the global market. A sluggish world economy should contain oil prices, but as ever there will be geopolitical risks keeping prices higher than they would otherwise be. That said, the overall risks on the oil price front are tilted to the downside at this stage,” he said.

Mr McQuaid said that on the food front, the cost of potatoes here at home is expected to remain high for some time.

Davy chief economist Conall Mac Coille said the CPI inflation rate has now fallen back sharply from rates exceeding 2% in early 2012. He said that one of the reasons is that the increase in the top rate of Vat to 23% in Jan 2012 has not been repeated this year. “This is good news for the Irish consumer, indicating that price pressures will put less pressure on real spending power. In time, the sharp decline in Irish CPI inflation could lead us to revise up our forecast for consumer spending in 2013,” he added.

ISME chief executive Mark Fielding said: “If we are serious about making the transition from a reliance on domestic demand to a sustainable export-led growth, we must bring all of our costs in line with our trading partners. The reality, from a business viewpoint, is that state cost increases, in particular, utility costs, local authority rates and charges continue to negatively impact businesses, who themselves have cut their manageable costs to the bone.”

The CSO said the most notable changes in the year were increases in alcoholic beverages and tobacco (+5.3%), education (+4.8%) and miscellaneous goods & services (+2.5%).