Irish Consumer Prices (September 2018)

• Headline annual inflation rate of 0.9%, up from 0.7% in August
• Prices down 0.4% month-on-month
• Prices down 0.3% in the month on HICP basis, giving 1.2% inflation rate
• Air fares and cost of hotel accommodation lower in the month
• Average inflation rate of 0.6% now forecast for 2018, up from 0.4% in 2017

Annual inflation rate pushes up to 0.9% in September

The latest Irish consumer price index, released this morning by the Central Statistics Office, was a touch weaker than expected, and still showing that overall inflationary pressures in the economy remain fairly-muted for the time being all things considered.

The annual inflation rate came in at 0.9% in September, up from 0.7% in August, and the highest rate since April last year. Prices were down 0.4% in the month, compared with a monthly increase of 0.3% in August.

Meanwhile, the HICP rate, the measure used for EU comparative purposes, was down 0.3% in the month, giving an annual inflation rate on this basis of 1.2%, up from 0.9% in August, and the highest rate of increase since February 2013.

The main monthly changes affecting the CPI in September were decreases in the cost of air fares and hotel accommodation. Against that, rents and the cost of home-heating oil were higher in the month, and clothing & footwear prices rose following the ending of the Summer sales.

Despite strong Irish economic growth, there is as yet 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.

That said, base effects are likely to play a factor over the rest of the year, with every chance that Ireland’s headline inflation rate will break above 1.0% before 2018 is out, possibly rising to 1.5% in December.

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 3.1% in the 2018-2019 period, well above the increase of 0.8% recorded in 2017.

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 to around 0.6%.

Consumer Prices (Source: CSO)
Month CPI
Dec 2016=100 % Change
Month % Change
Year HICP
2015=100 % Change
Month % Change
Year
2017 September 100.8 -0.6 0.2 100.2 -0.6 0.2
2018 July 101.8 0.4 0.8 101.4 0.4 1.0
2018 August 102.1 0.3 0.7 101.7 0.3 0.9
2018 September 101.7 -0.4 0.9 101.4 -0.3 1.2

Alan McQuaid (11/10/18)
Economist