Irish Consumer Prices (June 2018)

• Headline annual inflation rate of 0.4%, same as in May
• Prices up 0.1% month-on-month
• Prices also up 0.1% in the month on HICP basis, giving 0.7% inflation rate
• Petrol, diesel, hotel accommodation and alcohol up in the month
• Average inflation rate of 0.5% forecast for 2018, up slightly from 0.4% in 2017

Annual inflation rate unchanged at 0.4% in June

The latest Irish consumer price index, released this morning, was a touch lower than expected, and still showing that overall inflationary pressures in the economy remain fairly-muted.

The annual inflation rate came in at 0.4% in June, the same as in the previous month. Prices were up 0.1% in the month, compared with a monthly rise of 0.6% in May.

Meanwhile, the HICP rate, the measure used for EU comparative purposes, was also up 0.1% in the month, giving an annual inflation rate on this basis of 0.7%, unchanged from May.

The main monthly changes affecting the CPI in June were increases in the cost of petrol, diesel, hotel accommodation and alcohol. Against that, air fares, and the price of a wide range of food products (including meat and vegetables), as well as clothing and footwear, were lower than in May.

Despite strong Irish economic growth, there is little sign of sustained pressure on the prices front, which appears to be the same story across the Eurozone, suggesting that the European Central Bank will be in no hurry to increase interest rates.

Although the annual inflation rate should pick up in the coming months, inflationary pressures in Ireland as measured by the headline consumer price index are in general likely to stay well contained for the immediate future.

Oil prices will be critical in determining the headline inflation outlook over the next twelve months or so, but they remain volatile and hard to predict given the uncertainty over OPEC supply and geopolitical tensions in the Middle East.

However, with the economy continuing to grow strongly, the more immediate worry on the domestic inflation front centres around increased wage demands, particularly in the public service. As the labour market approaches full employment levels, wage growth will pick up. In its most recent Quarterly Economic Bulletin, the Central Bank forecast average compensation per employee of 3.2% in the 2017-2019 period, more than double the 1.4% increase recorded in 2016.

Ireland’s average inflation rate was 0.4% in 2017, up from 0% in 2016. Although the average for the first half of 2018 was only 0.2%, the average for the year as a whole should pick up modestly to around 0.5%.

Consumer Prices (Source: CSO)
Month CPI
Dec 2016=100 % Change
Month % Change
Year HICP
2015=100 % Change
Month % Change
Year
2017 June 101.0 0.1 -0.4 100.3 0.1 -0.6
2018 April 100.7 -0.2 -0.4 100.3 -0.2 -0.1
2018 May 101.3 0.6 0.4 100.9 0.6 0.7
2018 June 101.4 0.1 0.4 101.0 0.1 0.7

Alan McQuaid (12/7/18)
Economist