Fall in wholesale energy prices not enough to deter ECB from hiking rates, says expert

The Central Statistics Office (CSO) Wholesale Price Index showed the overall Energy Products Index decreased by 33.5% in June, driven by warmer weather.

New figures for Irish factory gate prices showed annual electricity prices fell by almost 36% in June, reflecting similar drops across Europe, but the declines will not be enough to stop interest rate hikes, an expert has said.

The Central Statistics Office (CSO) Wholesale Price Index showed the overall Energy Products Index decreased by 33.5% during the same period, driven by warmer weather.

“The energy component of inflation here and everywhere is declining sharply. But that will not be sufficient to deter the European Central Bank from doing what I think it’s going to do,” said economist Jim Power.

The ECB is expected to meet next week to introduce a ninth successive interest rate hike since it started tightening monetary policy last July in an effort to drive down sticky inflation, which Russia's invasion of Ukraine has added to.

Mr Power said it was likely the ECB would impose another interest rate hike after next week’s announcement.

“Non-energy inflation is still too strong for their liking,” he said.

“The news on headline inflation over the coming months is good but it will not be sufficient to deter the ECB and indeed the Federal Reserve and Bank of England from increasing rates a couple more times,” said Mr Power.

Last week, ECB hawk Klaas Knot suggested officials could soon pause their interest-rate hike campaign.

“For July I think it is a necessity, for anything beyond July it would at most be a possibility but by no means a certainty,” he told Bloomberg TV.

The ECB has raised interest rates by 4% since last summer, immediately hitting about 200,000 tracker mortgage customers in Ireland.

Producer prices

Meanwhile, as electricity prices took a tumble, annual domestic producer prices for manufactured goods were on average 3.9% higher in June.

There were some increases in producer prices for specific foods including fruit and vegetables, which rose 16.3%, fish and fish products increased 13.2% and bakery goods went up 4%.

However, dairy product prices dropped in the same period by 13% along with vegetable and animal oils which fell 7%.

Other notable annual changes in producer prices included beverages, which went up 17.2%, other non-metallic mineral products such as glass, ceramics, cement, concrete and stone rose 10% and clothing climbed 7%.

Wholesale prices for construction products rose by 6.5% in the 12 months to June, indicating chronic challenges are still holding back housing output. 

Materials including structural steel fabricated metal rose 32%, plaster increased 28% and cement jumped 24%.

On a monthly basis, wholesale price inflation showed a small increase of 0.5% in June compared to the previous month.

Wholesale electricity prices increased by 11.3% in the same period.

Leading electricity provider Electric Ireland suggested bills remain high because “while forward wholesale prices have fallen in recent months, particularly so since their peak in autumn 2022, they are currently in the region of 300% higher than in 2020”.