Inflation falls, but fuel costs may rise

Official inflation figures published yesterday show that prices of goods in the economy continued to fall, but there were signs that the dampening effect of the collapse in oil prices is coming to an end.

The CSO consumer price figures for May also starkly revealed that private rents continue to soar, reflecting a chronic shortage of housing accommodation across many parts of the country as the economic recovery takes hold.

Some analysts believe the surge in private sector rents could be a huge political headache for the Coalition in the run-up to the election in less than a year’s time.

Consumer prices fell by 0.3% in the year to May — the sixth successive such monthly fall — as prices for clothing, transport, food, household equipment, and maintenance all recorded falls over the year, the CSO figures show.

Prices however rose in May from April by 0.3%, led by a monthly rise in transport and communications, which may point to the waning effect of lower crude oil prices.

Prices for energy products are still down by 5.4% over the year, but have started in recent months to increase at a rapid pace.

Energy products rose 2% in the month and are now 5.5% higher over the last three months.

The price of Brent crude had plunged to $53 (€47) a barrel at the start of the year from over $110 a barrel in July last year, helping to lower prices of many manufactured goods and boosting household income.

However, the crude price has since started to increase and was trading yesterday around $65 a barrel.

That suggests prices for many products may start to rise in time.

The CSO figures show the prices of all goods decreased on an annual basis by over 3%, while the price of services, excluding mortgage interest rates, increased by 2% in the year.

Mortgage interest costs recorded a drop of 0.9% in the month and posted a huge fall of 8.2%, reflecting the political pressure on lenders to reduce the standard variable interest rates and fixed-home loan costs they charge borrowers.

However, private rents recorded a further 0.6% increase in the month and a huge rise of almost 9% in the past year.

Local authority rents have fallen by 0.3% in the past year, according to the CSO figures.

Alan McQuaid, chief economist at Merrion Capital, said: “Despite the strong recovering economy, domestic inflationary pressures in Ireland are in our view likely to remain fairly well contained in the immediate future. That said, we do expect some pick-up as the year goes on due to higher oil prices, a gradual rise in wages, and the lower euro pushing up import costs.”

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