Irish consumers still paying higher prices

IRISH consumers are still paying a fifth more than their average EU counterpart for goods and services despite the country’s GDP having fallen by more than 13% in the past three years.

New figures released by Eurostat show that on the face of it, Ireland is still a wealthy nation with only Luxembourg and the Netherlands ahead in the GDP stakes.

But when the amount of money multinationals send back to their headquarters is taken out of the equation, the resulting gross national income (GNI) is very close to the average at 106% — considerably less than the 128% GDP.

The crisis, a drop in government spending and growing unemployment are reflected in consumption levels that have been falling over the past three years and are now on a par with Italy and Greece. This gives a clearer picture of how wealthy families actually are.

At the same time, prices have been dropping but goods and services are still the fourth highest in the EU — having been second highest after Denmark last year. At 124%, they are well above what they are in Britain and the EU average. Bulgaria is the cheapest country at just 45%.

The variation in GDP per capita across the EU remains remarkable, noted Eurostat upon releasing the figures. Luxembourg retains its place at the top of the table with more than two and a half times the EU 27 average and six times higher than the poorest state, Bulgaria.

However the fact that a very high number of people working in the tiny country live outside its borders means they are not counted as residents and so the total GDP is not divided by the full working population. Eurostat says the GNI figure gives a more accurate reflection of the duchy’s wealth but at 195% it is almost double the EU average.

While Ireland’s GDP continues to cling onto its third place in the EU just behind the Netherlands at 116%, there is a clear downward trend and between 2008 and 2010 it decreased by more than 13%, according to Eurostat. Fellow programme countries Greece has fallen to 90% while Portugal has remained at 80%.

The GDP figures are based on purchasing power indices to allow a direct comparison across member states despite the difference in pay and prices. But, says Eurostat’s Paul Konijn, they are not a suitable indicator of households’ real standard of living.

As a result they have devised the Actual Individual Consumption per capita (AIC) which takes into account the money spent on households and the goods and services they use that are paid for by the state and others, such as education and medical cards and charity donations.

Using this measurement Luxembourg keeps its position at the top although its AIC per capita is just 50% above the average. Britain comes second at 21% above average while its GDP was just 12% above the average.

Ireland on the other hand drops down the chart and its AIC was only marginally above the average at 102% — down from 109% in three years. This reflects the fact that people are paying more for goods and services, they are saving more, unemployment has risen and there are fewer state services.

Ireland together with the three Baltic countries of Estonia, Latvia and Lithuania and Iceland have seen the most substantial decline in their relative position in the period 2008-2010.

The figures show that, while price levels are marginally converging within the euro area, this is not the case in the EU as a whole or in the complete group of 37 countries that include candidate countries.

Exchange rates are crucial in determining price levels and changes have a big impact. The currencies of a number of countries including Iceland, Poland, Britain, Hungary, Turkey, Romania and Sweden depreciated more than 10% against the euro between 2008 and 2009. This was reversed between 2009 and 2010.