Alcohol helps push up inflation 0.3%

The rate of annual inflation rose marginally in November pushed up by the cost of alcohol, tobacco, and education.

Although the prices of these goods grew by up to 6%, the surge was offset by a fall in mortgage interest costs as a result of the ECB’s decision to cut interest rates and the low price of oil.

The consumer inflation rate was recorded as 0.3% in November, up marginally from 0.1% in October.

Alan McQuaid, chief economist at Merrion Economics, said a number of factors were weighing down sentiment.

“Domestic inflationary pressures in Ireland are likely to remain depressed for some time to come.

“Subdued consumer demand will in general continue to put downward pressure on prices in the months ahead.

“The residential property tax has hit disposable incomes hard, which in turn is weighing negatively on spending power. And it should be remembered that the full-year effect of the property tax has yet to be felt,” he said.

There is a threat of deflation poised by the perfect storm, depressed consumer demand and increased taxation, that could cause Ireland to be behind its inflation goals.

“At this point in time it looks like deflation rather than inflation is the bigger threat to the economy, and it is not just in Ireland. Euroland inflation fell to a four-year low of just 0.7% in October, way below the ECB’s target of close to 2.0%. This prompted the central bank to cut interest rates by 25 basis points to a record low 0.25% in response at its November policy meeting,” he said.

Davy analyst, David McNamara, had a more positive outlook: “The continued weakness of import prices is a welcome boost to households’ spending power in the run-up to the Christmas period and should mean further expansion in real wages”