Inflation falls to 3-year low

Inflation levels fell to a three-year low in August, with the annual rate now expected to be below 1% come the end of the year.

Consumer prices as measured by the CSO grew by 0.1% in August, when measured on a month-by- month basis and were up by 0.2% on a year-on-year basis; the latter measure the lowest level of inflation since July 2010. August’s reading, though not unexpected, also followed two consecutive months when the annualised rate was 0.7%.

On an annual basis, the notable rises were 5.4% in alcohol and tobacco prices, 4.8% in education and 1.6% in restaurant and hotel prices; while clothing and household furnishing costs declined.

Alan McQuaid, chief economist with Merrion Stockbrokers, said the average inflation rate, for 2013 as a whole, is now unlikely to exceed 0.8%. That would follow annual rates of 1.7% and 2.6% in each of the past two years.

“Domestic inflationary pressures in Ireland are likely to remain depressed for some time to come. Continued weak consumer demand will, in general, 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,” Mr McQuaid said.

“The main risk on the inflation front, this year, and indeed over the next 12 months, will once more come from the external side, and in particular the price of energy 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,” he added.

Davy Stockbrokers’ chief economist, Conall MacCoille welcomed the latest fall, saying that lower energy prices, mortgage interest costs and import prices will clearly help consumers’ purchasing power — despite other budgetary measures, such as the property tax, constricting household incomes.