Cost of living on the rise
YOU can see it at the pumps. And from last month you may notice it when you get your shopping bill or when the ESB bill drops through the door.
Prices are going up. And at a time when wages have gone down and the pain of the budget begin to bite, it’s more bad news for households.
Petrol alone jumped by 7% in December and by 18.6% over the year — thanks to the rising global cost of oil and hike in excise duty in last month’s Budget.
Ulster Bank chief economist Simon Barry said consumers should expect further price increases in petrol and diesel this month.
The latest consumer price index from the Central Statistics Office (CSO) showed a doubling in the annual inflation rate in December from the previous month. Month-on-month there was a rise of 0.2% in the cost of living, while annual prices were up 1.3% last year.
The last time inflation was over 1.3% was in November 2008.
IBEC chief economist Fergal O’Brien is predicting a rise of up to 2% this year because of higher commodity prices and a weaker euro.
“However, the extensive spare capacity in the economy and the ongoing weakness in disposable incomes means that prices will remain subdued in most sectors of the economy. It was no surprise to see the energy and food prices increase in December but their contribution to inflation remains limited,” he said.
Food prices increased by 0.3% in December with hikes seen in milk, cheese and bread. Also electricity prices nudged up 3.2% as did bottled gas by 4.2%. The hike in petrol and diesel costs resulted in a rise of 3.7% in air travel costs last month and a 0.1% in sea travel costs.
Meanwhile, clothing and footwear prices fell due to the winter sales and wine and spirits sold in supermarkets were lower in the month too.
Bloxham chief economist Alan McQuaid said the main upward pressure in inflation in the months ahead will come from mortgage interest rates and food and energy costs. But he said there’s no doubt that the upward trend in global commodity prices, if maintained, has the potential to push Ireland’s headline inflation rate higher in 2011 than what analysts are currently projecting.
Insurance is one area that consumers will be keeping an eye on this year. Home insurance costs were flat last month but increased almost 15% in the year.
Motor and health insurance premiums both rose slightly last month.
Meanwhile, despite speculation that rents have started to stabilise they continued to fall last month and were down almost 2% last year.
A night out also reduced in cost last year with alcohol prices down 3%. Big falls were seen in nightclub admission prices which were down 14% in 2010. Despite this however there was a jump of 6.5% in hairdressing costs in December.
Goodbody economist Dermot O’Leary has warned against believing that price drops in the economy are over.
“The rise in energy and food prices internationally may prove to just have a transitory effect on inflation, but this, of course, is beyond Ireland’s control. Outside of these, global inflation pressures are low.
“Therefore, we think it would be premature to call the deflationary period to regain competitiveness in the economy over, whether it be reflected in domestic wages or the general level of consumer prices,” he said.
FOOD AND DRINK:
FOOD prices have started to creep up, rising 0.3% in December. Last month saw slight increases in the price of bread, milk and cheese. Last year, flour rose 18.5% while fruit was up 6%. Coffee also increased by 7.6%. However, potatoes fell in cost by 12% last year while meat fell by almost 5%.
Consumers have enjoyed the benefits of a continuing supermarket price war. However, the rise in global commodities could see a rise in costs this year. The rises in milk, bread and cheese prices last month could be some indication of what’s to come. However, supermarkets will continue to battle with each other to win customers and if the downturn has taught shoppers anything it’s that shopping around pays.
CLOTHES:
With retailers on their last legs, clothing prices were cut last month to encourage shoppers. Clothes prices fell 2.2% in December and are down by 4% in the year. Shoe prices also fell by 2.4% in the month, bringing the annual decline to 6.3%. Dry cleaning prices were down 0.5% while dress hire and repair costs fell by 0.2%.
When it came to personal grooming however, consumers were hit with some price hikes last month. Hairdressing costs were up 5.5% in December alone, while health and beauty costs rose by 6.5%.
With retailers very badly hit last year, shoppers can continue to expect to see the continuation of sales.
Ulster Bank economist Simon Barry said he anticipates the significant declines in clothes prices to follow in January.
ELECTRICITY AND GAS:
There’s plenty of fun to be had in the electricity and gas markets as providers clamour for business. Ever since the launch of the Bord Gáis Big Switch Campaign, consumers have become more aware of the savings that can be made. Airtricity and Flogas have both taken on the big-hitters, offering lower prices to customers.
In the last year figures show electricity has gone up 3.2% while natural gas has fallen by 1.4%.
Regulated energy prices have remained stable through 2010 and will do for gas until October 2011.
Simon Moynihan of consumer website Bonkers.ie said the coldest winter in living memory has seen demand for gas shoot up and sent wholesale gas prices skyrocketing.
Suppliers like Bord Gáis and Airtricity are now paying up to 35% more for the energy they supply to households than they were almost a year ago, he said.
During the cold spell, British energy suppliers responded to higher wholesale costs by hiking prices for their customers by up to 9%. “However, in Ireland there was better news for cash-strapped consumers. The energy regulator announced earlier this month that household gas prices would not be allowed to change until October 2011, keeping Irish prices lower than the European average,” said Mr Moynihan.
Bord Gáis is the only regulated gas supplier and is not allowed to change gas prices without permission from the energy regulator. Flogas and Airtricity, the other two Irish gas suppliers, are not regulated and can set their own prices.
“However, in an ongoing bid to win customers from Bord Gáis, both companies have maintained lower-priced tariffs despite higher costs and increased demand.
“In the short term, this is good for Irish consumers and they can expect home energy prices to remain stable until at least October. With increased competition and a re-branded ESB shortly expected to enter the market with lower-priced deals on both gas and electricity, customers could even reduce their home energy costs in 2011, especially those that have never switched suppliers,” he added.
It hasn’t all been good news for Irish households though. Last May saw the introduction of the carbon tax, which saw the average annual gas bill go from around €684 to €727 — an increase of €43 or €6%.
TRANSPORT:
With petrol and diesel prices having soared by 20% in the last year, it’ll come as no shock to learn that the cost of travel edged up last month.
Air travel was up almost 4% in December alone, while sea travel jumped slightly too. In the year air travel is now up almost 7% while sea travel jumped 8%. Bus fares also edged up by close to 1% in the year, while rail costs were 0.3% higher.
Last month alone petrol prices increased 7.1% bringing the annual rise to 18.6% while diesel prices were up 6.3% in the year, rising by 22.4% annually.
Even low-cost airline Ryanair has made no secret of the fact that its prices went up last year. Latest figures show that in the six months to the end of September 2010 average fares rose 12% to €44.
RESTAURANTS AND HOTELS:
Hotel prices are at a record low at the moment and according to those in the know, there’s only one way they can go from here. That said, however, hotels are still offering some great deals in a bid to lure customers and are offering good rooms for as little as €39 in central Dublin.
President of the Irish Hotels Federation (IHF) Paul Gallagher said hotel prices are at 1999 levels and at this rate they are not sustainable.
“There’s a significant number of hotels not making a profit and things are going to get worse. Something will have to give,” he said.
In the last year restaurant and bar prices are down 1.2% but prices remained flat last month, which could be an indication that prices are on the move upwards again. Hotel prices, however, continued to fall last month and were down by 2%. In the year prices have fallen by almost 6%.
INSURANCE:
It’s no secret at this stage that insurance costs are edging up — home and health particularly. The VHI recently announced that it was increasing premiums by an average of 15% while a spate of adverse weather conditions has meant that home insurance costs are also rising.
In the last year house insurance costs are up almost 15% and have soared by 60% in the last 10 years.
Medical insurance costs, which are up a massive 166% in the last 10 years have soared because of medial inflation, according to the Irish Insurance Federation.
Over the last 10 years insurance costs in general are up 65%.
Most car insurance premiums will increase this year, many by up to 10%, according to Deloitte. Nine out of 10 motor insurance companies surveyed by Deloitte said they plan on hiking premiums this year.
On the bright side, however, there is now a lot more competition in the insurance market. As soon as the VHI announced its price increase Aviva and Quinn went on the hunt for people looking to switch. Also there are many online sites such as nononsense.ie which allows people to compare insurance costs from the various providers.
The big message when it comes to insurance is to shop around and never accept the first offer.
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