Thursday, October 13, 2011

13/10/2011: CPI for Ireland: September 2011

Consumer prices inflation is now running above 2.5% in Ireland and the usual culprits are to be blamed.

Consumer Prices in September rose +0.3% mom against a decrease of 0.1% recorded in September 2010. As a result, per CSO, "the annual rate of inflation increased to 2.6%, up from 2.2% in August 2011". Annual inflation is now running above 2% target every month since January 2011.

The EU Harmonised Index of Consumer Prices (HICP) for Ireland rose +0.1% in the month, compared to a decrease of 0.2% recorded in September 2011. The annual rate of HICP was 1.3% higher in September compared with September 2010. Annual HICP was running at 1% increases in July and August - the lowest rate of HICP in Europe.

Chart below illustrates:
All Items CPI is now in annual expansion since August 2010. Moderate rates of under 1.7% CPI were exhausted in January 2011 and since then we have entered the period of excessive inflation, especially compared with the overall stagnant domestic demand activity. This means that accelerating price increases are no longer acting to support economic growth, but are compressing already strained household budgets and increasing future pressure on interest rates. It is worth noting that ECB decisions on rates are based on HICP, not CPI, which means that with Euro area HICP at 2.5% in August and July, against HICP rates at or above 2.5% every month since April 2011, the rates direction should be up.

Pert CSO, the most notable changes in the year were:
  • Increases in Housing, Water, Electricity, Gas &Other Fuels (+8.9% in September 2011 which comes on top of 8.5% rise in a year to September 2010), Miscellaneous Goods &Services (+6.5%), Transport (+4.2%) and Health (+3.4% - unchanged mom but up yoy in September, against an annual rise of 0.5% in September 2010).
  • Decreases in Furnishings, Household Equipment & Routine Household Maintenance (-2.3%) and Education (-1.6%).
  • The annual rate of inflation for Services was 3.6% in the year to September, while Goods increased by 1.3%.
The most significant monthly price changes were:
  • Increases in Clothing & Footwear (+5.4% - mostly due to seasonal effects) and Housing, Water, Electricity, Gas&Other Fuels (+1.7% - mostly due to mortgages interest costs rising +3.1%mom, liquid fuels (i.e. home heating oil) costs up +1.7%, electricity (+1.6%)).
  • Decrease in Transport (-0.7% - primarily due to decreases in airfares which fell 16.9%. Increases were recorded in bus fares (+8.8%), bicycles (+0.4%) and petrol (+0.3%)).

Charts below illustrate:

Charts below detail the rising gap between state-controlled prices and overall CPI as well as the gap between state-controlled prices and private sector prices:

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