Easing of consumer inflation to 5% likely to be respite only

The price of bread, up 7% in the year, ice cream up by 6.6%, and margarine prices which are 12% higher, may reflect the amounts of energy needed to make such products. File photo

Irish consumer price inflation rose by 5% in January, as price hikes for energy and other related costs weighed on household bills.

However, inflation was down from the 5.5% rate posted in December – helped by discounting for clothing and footwear retailers in their post-Christmas sales – and few economists believe the latest figures mark any sort of respite.

Inflation has unexpectedly returned to most other parts of the world as the global economy roared back from the worst of Covid crisis. Irish annual price inflation had steadily risen from 3.7% in September and had risen to 5.1% in October and to 5.3% in November. 

The fall back in Irish inflation "is likely to be short-lived", said Austin Hughes, chief economist at KBC Bank Ireland. Consumer prices will again accelerate to peak between 6% and 7% before easing after the summer as long as the Ukraine crisis doesn't deteriorate, Mr Hughes said. 

January's 5% "may not be the end of it", said Conall Mac Coille, chief economist at Davy. Price pressures have been driven most by the shortages of all types of energy across Europe this winter. 

The squeeze has been made worse by the crisis over Ukraine because Russia is a major supplier of gas to western Europe, at a time when global oil prices have soared again towards $100 a barrel. 

Gas prices have climbed over the past year, making a major impact on the costs of generating electricity on the grid, which are passed onto household utility bills and to businesses.          

Making matters worse, Opec and its allied nations have successfully controlled the supplies of crude onto oil markets, and global demand for oil has been sparked following the lifting of the restrictions during the Covid pandemic.  

It takes about two weeks for any sustained changes in crude oil prices to pass through to petrol forecourts. The price of Brent crude was trading on Thursday at $95 a barrel, which is up from $88 only a month ago.               

The January figures show some outstanding increases across energy costs. The price of home heating oil last month was 50% more expensive and petrol prices were up by over 29% compared with January 2021.

The return of inflation in Europe has taken many economists by surprise and has already forced the ECB to reconsider its commitment to keeping interest rates unchanged this year. 

Beyond energy, the latest figures show worrying price pressures in housing – rental costs were up by an annual 8.4% and mortgage interest rates rose by almost 4%.

Much focus remains on whether price pressures will spill across the economy, as happened in the early noughties. 

The price of bread, up 7% in the year, ice cream up by 6.6%, and margarine prices which are 12% higher, may reflect the amounts of energy needed to make such products. All food and non-alcoholic beverage items rose by an average 2.1% in January from a year earlier, while alcohol and tobacco prices climbed 8.4%. 

The CSO noted minimum alcohol pricing was introduced last month, which sent alcohol prices climbing almost 17.5% from December.