According to the latest Eurostat figures, Ireland had the lowest rate of inflation in the euro zone in November at 0.5 per cent.
This compares to an average for the bloc as a whole of 2.2 per cent.
There is, however, a number of important caveats. First and foremost, prices are still going up. So yes, we are getting rapid disinflation (a fall in the level of price growth) but not deflation (a sustained period of falling prices).
However, in our favour, the economy as a whole is experiencing a period of real wage catch-up with nominal wage growth outstripping inflation. That means the purchasing power of households is improving after two years of a cost-of-living crisis.
Another caveat is that the fall-off in inflation has lot to do with statistical base effects. If the inflation rate was particularly high in the corresponding month of the previous year, even a relatively small change in prices will automatically give rise to a low rate of inflation right now.
And a third caveat is that the Eurostat figures are based the harmonised index of consumer prices (HICP) compiled by the Central Statistics Office (CSO). The official measure of price growth in Ireland is the consumer price index (CPI), which was 1 per cent in November.
The HICP differs from the CPI mainly in the basket of goods used to benchmark average price increases. The CPI has tended to be higher than the HICP because it includes, unlike the HICP, items like mortgage repayments and building materials prices.
These caveats aside, inflation has come down more rapidly than anyone expected and markets are expecting a sequence of interest rate reductions at European Central Bank level next year to reflect that. The concern among policymakers in Frankfurt seems to have switched from inflation to growth given Europe’s flagging economy.
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