Inflation slows - Good news, but hold the champagne

AT LAST, some good news, albeit minor rather than major in scale and import.

Inflation slowed to 4.4% last month from 5% in June; in April it fell to 4.3%, down from March’s 5%.

The annual rate of inflation, based on a European Union measure, has dropped to 3.6% from 3.9% in June. Prices fell 0.5% from the previous month.

Ireland’s 4.4% figure, unlike the EU statistic, includes the impact mortgage changes have on inflation but Irish inflation is now clearly below the eurozone average on a comparable basis.

However, it should be noted that the figures were brighter than they might be as mortgage rates rose in July last year whereas the impact of the July 2008 European Central Bank rate rise won’t be seen until next month’s inflation data is published.

There is still the possibility that next month’s figures might be even more cheering as yesterday’s figures did not reflect the recent fall in energy prices.

Oil has dropped almost 17% since reaching a record $147.27 on July 11. A barrel cost $118 yesterday, the lowest point since May 5.

On the forecourts the average price of a litre of petrol is 129.9c — down 4c from last month — while diesel has also fallen 4c, to an average of 139.9c. Though it is the cheapest fuel has been since May, the falls are far short of the 20% drop in oil.

Figures from the AA show that since January, petrol had risen from 118.9c a litre to 133.5c in July, while diesel had increased in price from 119.6c to 143.8c. However, we know that significant increases in gas prices are on the way, so this energy-price respite may only be temporary.

Yesterday’s surprise factor was the softening in price pressures in a number of other areas. Food prices fell for the second successive month. You have to go back four years to find the last time food prices fell in July. Annual food-price inflation peaked at 9.6% in March. It is now down to 7.1%.

Our July prices are likely to be softer and it looks as if we have passed the peak and that more demanding consumers are forcing retailers to be competitive. If so, then we may see further falls. Softer food prices accounted for about 0.1% of the lower-than-expected Consumer Price Index (CPI).

Another surprise reduction — at 0.1% — came from restaurants and hotels. The price of accommodation fell by 0.3% in July, the first fall in July in the 11-year history of monthly CPI figures. Restaurant prices were also soft, rising by 0.2% versus an average July rise of 0.5% over the past five years.

It appears a touch of sanity is returning to the sector, which was, during the giddy days of the boom, often as much about ostentation as it was about a decent meal and a bed for the night.

Consumers may well have had enough of the €7 glass of wine at lunch too.

There is some cheer in these figures but not enough for us to break out the champagne or allow us to ignore our responsibilities to the lower paid who suffer disproportionately during inflationary times.

However, anything that curbs inflation is very welcome as it may, to some degree at least, dampen wage demands and reduce the potential for the kind of conflict that could do long-term damage to our society and to the economy.

If these figures do no more than create a frisson of optimism they are welcome indeed. To quote a line used at a time of far greater crisis: “It may not be the beginning of the end, but it may be the end of the beginning.”