Era of falling prices coming to an end

THE era of falling prices is coming to an end with the warning that mortgage costs are set to rise and Tesco is pulling the plug on its euro-sterling price parity initiative.

Figures released by the Central Statistics Office (CSO) yesterday showed prices rose 0.4% in August – the first hike since September last year – driven by higher clothing, mortgage and petrol costs.

Experts are also warning homeowners are facing the prospect of increased mortgage costs despite the European Central Bank (ECB) indicating it would not increase interest rates until at least next year.

Alan McQuaid of Bloxham stockbrokers said mortgage costs are set to rise, irrespective of what the ECB does with official interest rates.

“Average mortgage rates in Ireland are now among the lowest in Europe. This is of particular concern for the profitability of Irish banks given the high loan/deposit ratio across the sector.

“It appears inevitable that margins will have to be increased to balance the banks’ cost of funding,” said Mr McQuaid.

In July, Permanent tsb increased its standard variable rate for customers by 0.5%.

Director of the Irish Mortgage Corporation, Frank Conway, said this move will likely be copied by other banks in the coming months.

He said for new mortgage holders, some banks have already increased their interest rates significantly.

Ulster Bank economist Lynsey Clemenger said with the mortgage rate reductions over and with crude oil prices well off their lows reached earlier in the year, monthly price falls in the remaining months of the year will be increasingly harder to come by.

According to the CSO, prices rose 0.4% in August from the previous month and fell 5.9% from a year earlier.

Food prices fell 1% in August from the previous month and were down 4.8% from a year earlier.

The cost of clothes and footwear rose 3.4% on the month and were down 13.2% in the year. Petrol prices rose 1.7% in the month.

Meanwhile, Tesco confirmed that from Monday, September 20, it is ending its euro-sterling price parity offer on clothing.

It will instead offer clothes at a rate of £1/€1.15, which it said is reflective of market conditions.

Tesco announced in March that shoppers would be able to buy clothes at the sterling price but in euro. The move was designed to stop shoppers heading to the North for their clothes.

At the time, Tesco said this initiative would be a “long-term” investment.