Inflation drops to the lowest rate in over two years

Central Statistics Office figures show that energy and fuel prices dropped significantly over the course of the year

Annual inflation during November stood at 3.9%. 

The annual inflation rate has fallen below 5% for the first time in over two years as the European Central Bank (ECB) meets today to decide the future path of interest rates.

The ECB is expected to keep rates unchanged as well as push black against against financial markets that are betting big for a first rate reduction as soon as three months from now.

According to the latest Consumer Price Index, prices in Ireland rose by 3.9% in the year to November down from the annual increase of 5.1% recorded in October. This marks the first month since September 2021 when inflation was below 5%.

Central Statistics Office (CSO) figures show that energy and fuel prices dropped significantly over the course of the year. Electricity prices dropped 14.5% and gas prices dropped 12%. Home heating oil dropped 16.9%.

In the same period, actual rents and mortgage interest payments increased by 15.2%.

Daragh Cassidy, head of communications at Bonkers.ie, said the figures would “no doubt come as a welcome relief to consumers” but added that “things are still tough for many households”.

“Food prices increased yet again in November (by 0.4%) and food costs are now around 20% higher than they were just two years ago,” he said.

“With some staple items having risen even more. And energy prices, which have driven much of the recent fall in inflation, are still around double normal levels.”

The areas with the largest price increases over the last 12 months were recreation and culture, up 7.7%, restaurants and hotels, up 7%, and food and non-alcoholic beverages up 6.7%.

The annual change in recreation and culture costs reflects a rise in prices in package holidays which were up 32%.

The increase in the cost of food was driven by higher prices across a range of products, such as vegetables, meat, bread & cereals, mineral waters, soft drinks, fruit & vegetable juices and sugar, jam, honey, chocolate & confectionery.

CSO statistician Anthony Dawson said: “There were price increases in November 2023 for a 2.5kg bag of potatoes (+30c) and Irish cheddar cheese per kg (+21c), while there were decreases in the price of two litres of full fat milk (-6c) and a pound of butter (-3c) when compared with November 2022.” 

Items such as rice (up 12%), frozen fish (up 21.9%), and sugar (up 34.2%) were among those that rose the highest in the last year.

While home insurance (up 11.1%) and health insurance (10.2%) have both risen sharply, car insurance only rose 1.8%. Recent Government supports in the area of childcare saw these costs drop 21.5% compared to last year according to the CSO.

However, while overall inflation continues to trend downwards, there hasn’t been a similar large drop in core inflation—which excludes the volatile prices of energy and food. Core inflation during November stood at 5.6% compared to the 6.3% recorded in October.

Mr Cassidy added that different factors could mean higher prices for consumers remain in the short term.

“Recent measures such as the removal of the 9% rate of Vat for the service and hospitality sector, as well as a big hike in the minimum wage, are also likely to put some upward pressure on prices in the the medium term,” he said.

"However, on a brighter note, falling inflation makes it increasingly likely that the ECB is done with hiking interest rates. So mortgage customers, especially those on trackers, can breathe a sigh of relief.

"However it may be several months before we see rates actually fall."