Inflation back in positive territory but ‘pressures will remain well contained’

Rising costs of clothing, transport and other services saw inflation move back into positive territory last month, with the annual rate rising to 0.2%, and prospects high for a further increase this month.

January’s figure, published yesterday by the CSO, followed a 0.1% annualised fall in February. However, an average headline inflation rate of around 0.5% — in line with last year — is expected for 2014 as a whole.

“While ECB rates and energy prices continue to act as a drag on prices, domestically-driven services price inflation is now growing at the fastest rate in two years,” said David McNamara of Davy Stockbrokers.

He also said the impact of a later Easter holiday this year could see inflation rise further in April.

“However,” he added, “the impact of benign energy prices and interest rates should offset price rises in the domestic economy, keeping headline inflation below 1% for most of the coming year.”

In agreement on this latter point is Alan McQuaid, chief economist at Merrion Stockbrokers.

“Although the global economy is likely to be stronger this year than in 2013, inflationary pressures in general are set to remain well contained. We see Ireland’s headline inflation rate being below 1% again in 2014. Following an average rate of just 0.5% in 2013, we are forecasting a similar figure for this year, with if anything, the risks tilted to the downside,” he said.

Speaking ahead of an Ictu economic conference today, general secretary, David Begg warned: “Deflation is a potential disaster for heavily-indebted peripheral countries, like Ireland. Last month average European inflation dropped to 0.5%. When prices fall consumer demand collapses and with it goes employment.”