Consumers query 1% fall in cost of living claim

So, the overall cost of living has fallen by approximately 1% since the onset of the recession five years ago.

Consumers could be forgiven for questioning the validity of such a figure, based on personal experience of prices over the past five years.

An analysis by the Irish Examiner of the Consumer Price Index published by the Central Statistics Office shows the general price of everyday goods and services has decreased by around 1% since the summer of 2008.

However, the headline figure conceals myriad price changes over that period for the 632 items that constitute the “shopping basket” used to calculate the CPI.

On close inspection, such changes reveal wide fluctuations in the cost of many household items with approximately half of all items measured in the CPI having increased over the past five years.

The range of price hikes and cuts goes from a 109% increase in the cost of health insurance to a 67% reduction in the cost of computers and understandably leaves many consumers puzzled as to what the real trend in prices is.

Despite the small reduction in overall prices, it is fair to state that the public’s perception is largely the opposite. Such a perspective can probably be attributed to large-scale increases in the cost of many everyday products and services, particularly in relation to energy, transport, education and health as well as the price of alcohol and cigarettes.

With so many common items recording double-figure percentage price hikes, it’s hard for many people to see how the overall cost of living is marginally more affordable now than back in the pre-recession summer of 2008. But the official 1% reduction in the CPI over the past five years is triggered, to a large degree, by a 34% cut in mortgage interest payments and 17% drop in private rents over the period.

Although the CSO excludes house prices from its calculation of the CPI, it does include the current (as opposed to the capital) cost of housing such as mortgage interest costs which reflect not only changes in interest rates but also the size of the average mortgage. As a consequence, it indirectly reflects the fall in average property prices of around 50% since the height of the boom.

The general reduction in the cost of living is also explained by big reductions in the cost of less-frequently purchased goods and services like IT and electronic equipment, household furnishings and clothing and footwear.

The price of groceries, which constitute a large percentage of a household’s expenditure, has also fallen by 5% amid strong competition between rival supermarkets driven largely by the arrival in the Irish market of discount supermarket groups Aldi and Lidl, although it is noticeable prices have begun to creep up again in recent months.

Within the food sector, there is also a dizzying array of price changes with the cost of pizzas and ice cream down 25% on average, while the price of flour is up 23% and breakfast cereals up 13%.

Even within dairy products, consumers can be excused for scratching their heads at how the price of butter has gone up by 12%, while the price of yoghurts has come down by the same percentage.

Meanwhile, international gas prices, which Ireland has little or no ability to influence, have risen sharply in recent years and are responsible for a significant rise in energy costs to the point that gas prices for domestic users have jumped by 27% since 2008.

With the majority of electricity used in Ireland now generated by gas, it is no surprise that the price of electricity has also soared by 31% over the same period.

Similarly, increases in the price of petrol (+20%) and diesel (+4%) have contributed to the rise in the cost of motoring and public transport as well as their knock-on effect on distribution costs with its inflationary effect on a range of other goods and services.

While the era of austerity could rightly be expected to have ushered in a period of downward pressure on prices, the reality is somewhat different.

Though some prices increases (particularly for those goods dependent on global prices) are unavoidable, consumers are left with the niggling feeling that if so many sectors can manage to lower their prices in recent years, why are many others unable or unwilling to do so?

Preliminary estimates of the national accounts for the year 2012 and revised estimates for the years 2007 to 2011 http://t.co/lgXT9Jw9BR

— Central Statistics Office Ireland (@CSOIreland) August 22, 2013