11 December 2008

CSO reports the lowest Inflation Rate in Years, but there is little Evidence in the Shops yet

The annual rate of inflation in Ireland has eased sharply in November, falling to 2.5% from 4% in October. This is the largest reduction since monthly records began.

According to the Central Statistics Office (CSO) in Dublin, the overall cost of living fell by almost 1% during November alone.
Lower mortgage repayments, as well as petrol and diesel price cuts were the main reasons for the reduction. However, there are no signs of food prices coming down. They are still as high as they were last month, and in some cases one can even see further rises, even though not as much as they rose throughout the first half of the year. (see also my entry of February 28th)

2.5% is the lowest inflation rate Ireland had for three years, and many economic indicators suggest that further reductions are likely in the months ahead.

The key factors behind the reduction are global, including a sharp interest rate reduction by the European Central Bank (ECB) in October, as well as rapid cuts in international oil prices due to mounting evidence that the global economy has entered recession.

Today's figures show average mortgage repayments fell by 8.4% in November, as banks began to pass on to borrowers the first of three interest rate reductions. Rents also fell by 6.1% during the month.

There was also a sharp reduction in the cost of home heating oil, which was down by more than 10% in November.
Since I heat my little house with peat and wood, that does not help me. The price for fire wood rose by 20% this year, and peat went up 12.5%. (This came on top of similar rises in 2007.)

Petrol prices were down 7.3% and diesel by almost 10%, as international oil price speculation rapidly unwound. Nevertheless people in Ireland still pay a lot more at petrol stations than anyone else in Europe. Only a few days ago Fine Gael's deputy leader and Finance spokesman Richard Bruton stated that petrol is 24% more expensive in Ireland, while diesel costs 18% more than in the other 26 EU countries. (see my entry of December 3rd)

With further interest rate and oil price cuts still to be passed on to consumers, all the signs suggest that inflation will ease further in the months ahead. There is also likely to be significant downward pressure on inflation coming from the strength of the Euro, which hit another record high of 88.8 pence against the British Pound Sterling today. This would be the equivalent of the old Irish Punt being worth almost £ 1.13, its highest value ever.

At least the currency value proves that adopting the Euro was a good and sensible decision, even though there were plenty of critics and grumblers during the first few years. But that has eased now.

Overall, today's figures are a little bit of good news from the CSO, which has delivered only bad news to us for most of the year.
However, for people like me, who don't have a mortgage and don't drive a car, the fall in inflation is only another number. I watch very closely the prices in the shops, and there have been no reductions at all. The whole of 2008 has seen an ever further rice in prices for even the most basic food and consumer goods. It will be interesting to see if the apparent fall of the inflation rate will reach the shops before Christmas. I somehow doubt it, with the exception that probably pork and products made with pork will be offered at reduced prices as soon as they are back on the shelves.

But that will have nothing to do with inflation. It will be an attempt to make good for the losses shops as well as producers made due to the recent contamination scandal and the subsequent food scare.
Being a vegetarian, this will not do me any good either. So, as much as I welcome the CSO's news of falling inflation, I have not seen or experienced any of its benefits yet.

The Emerald Islander

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