Irish inflation unexpectedly rises to 4.9% in August

Headline inflation in the Republic picked up unexpectedly in August as the cost of home heating oil, transport and airfares rose.

Price growth in the Irish economy, as measured by the latest harmonised index of consumer prices (HICP), increased to 4.9 per cent this month, up from 4.6 per cent in July. Prices on a monthly basis rose by 0.5 per cent.

In a worrying sign for policymakers, the flash estimate of HICP in Ireland coincided with a rise in inflation in Germany and Spain ahead of the bloc’s wider inflation numbers due on Thursday.

Inflation in Germany’s most populous state, North Rhine-Westphalia (NRW), rose by 5.9 per cent year-on-year from 5.8 per cent in July, supporting expectations that the European Central Bank’s (ECB) tightening cycle might not end soon.

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In Spain, consumer prices rose 2.6 per cent year-on-year in August from 2.3 per cent in July.

[ Another ECB rate hike now seen as 60% likely ]

As a result, money markets raised their bets on a September rate rise from the ECB, pricing in a 60 per cent chance of a 25 basis-point move.

“A September hike at this stage could be more of a coin toss, but more importantly, we sense that the hawks will see it as a last chance to hike one final time,” said Benjamin Schroeder, senior rates strategist at ING.

“One key input to arrive at a final assessment is the inflation data this week,” he said.

The latest rise in the HCIP in the Republic was put down to increases in the cost of home heating oil, transport fuels, airfares and package holidays.

The Central Statistics Office (CSO) said energy prices are estimated to have increased by 3.4 per cent in the month and risen by 5.1 per cent over the 12 months to August 2023. Transport costs have risen by 0.7 per cent in the month but decreased by 1.5 per cent on an annual basis.

Food prices remained the same in the last month and rose by 7.7 per cent in the last 12 months, it said.

Excluding energy and unprocessed food, core or underlying inflation as measured by the HICP is estimated to have increased by 4.8 per cent since August last year, down from 5 per cent the previous month.

The HICP measure differs the CSO’s official Consumer Price Index (CPI), which put price growth here at 5.8 per cent in July, as the latter includes mortgage interest costs, which have risen on the back of nine successive ECB rate rises.

The head of the Federal Reserve in the US, Jerome Powell, said last week that further tightening may be needed to cool still-too-high inflation, but also promised to move with care. – Additional reporting Reuters