SOARING fuel prices and higher mortgage costs pushed inflation to 4.7% last month — up from 4.3% in April.
Economists are predicting the annual rate of inflation will be more than 4% for 2008 — a figure that was unexpected at the start of the year.
Ulster Bank chief economist Pat McArdle said this high rate of inflation will eat into the household budget, thereby depressing spending on non-essential items and keeping overall consumer spending weak.
Mr McArdle believes housing and energy prices will push the inflation rate to 4.9% in June.
The figures released by the CSO showed consumer prices increased by 0.8% last month, compared with an increase of 0.4% in May last year.
Transport rose due to higher petrol and diesel prices, which were partially offset by a decrease in airfares.
Restaurants and hotels also rose due to higher prices for hotels, guesthouses and B&B accommodation.
The cost of running a home was also up, because of higher average mortgage interest repayments and further increases in the cost of home heating oil. The cost of going out was hit by price increases in alcoholic beverages and tobacco.
Bank of Ireland chief economist, Dr Dan McLaughlin, said: “Food prices were a big factor in the stubbornly high rate of inflation in the early months of the year, but the annual inflation rate in this category seems to have peaked.
“Energy inflation, in contrast, has begun to pick up again, following a 3.8% rise on the month, which boosted the annual rate to 9.2% from 7.3% in April.
“Petrol prices rose by 3.7%, to leave the annual increase at 8.2%, but this was dwarfed by a surge in diesel which was up 7.1% on the month and more than 23% on the year, and home heating oil, which has risen by 47% over the past 12 months.”
The annual inflation rate in Ireland has been in the 4.3%-5.1% range since late 2006.
“We are all caught in the rise in global inflation, which is the result of a sharp rise in global commodity prices such as oil and food; the credit crunch has added to the higher average mortgage interest payments,” said IBEC chief economist, David Croughan.
“If we accept our real living standards have taken a hit and cannot be simply clawed back by non-productivity related pay increases, then inflation will subside as the global inflation spike passes.”
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