Irish inflation drops to 3.9% as falling energy prices ease pressure on households

Headline inflation in the Irish economy has fallen below 4 per cent for the first time in over two years, partially easing the pressure on consumers and businesses.

Inflation, which measures the rate at which consumer prices increase, dropped to 3.9 per cent in the year to November, down from 5.1 per cent the month before, according to the Central Statistics Office (CSO).

This is the first time since September 2021 (when it was 3.7 per cent) that inflation as measured by the Consumer Price Index (CPI), the State’s official barometer, has been below 5 per cent.

The latest figures reflect a general easing of price pressures across the Irish economy on the back of falling energy prices internationally and as a result of 10 straight interest rate hikes from the European Central Bank (ECB).

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Prices on a monthly basis fell by 0.8 per cent in November, which was only the second time this year prices have fallen month on month. Core inflation, which strips out volatile energy and food prices, remained elevated at 5.6 per cent, however.

The sector with the largest monthly decline was housing, water, electricity, gas and other fuels, with prices falling by 2 per cent. Within this category, the cost of electricity and natural gas fell by 10 per cent and 12 per cent in the month of November alone.

Prices in the recreation and culture category fell by 1.8 per cent last month “primarily due to lower prices for package holidays,” the CSO said. Conversely, the cost of clothing and footwear rose by 0.5 per cent.

Mortgage interest costs were up by 1.9 per cent in November and by a significant 37 per cent on an annual basis reflecting the ECB’s rate increases.

Despite the faster-than-expected fall in inflation here and across the euro zone, ECB president Christine Lagarde warned on Thursday that upside risks to inflation - linked “to the heightened geopolitical tensions, which could raise energy prices in the near term, and extreme weather events, which could drive up food prices” - remained.

She was speaking after ECB policymakers left rates unchanged at their December meeting.

The softening of headline price growth was even more pronounced when measured by the harmonised index of consumer prices (HICP), a separate EU measure of inflation which does not include mortgage interest payments. This slowed to just 2.3 per cent in November, according to figures published earlier this month.

The squeeze from higher interest rates has driven a slowdown in headline growth. In its latest winter commentary, the Economic and Social Research Institute cut its domestic economic growth forecasts for a third time this year, citing rising interest rates. The think tank expects the domestic economy to expand by a modest 0.6 per cent this year.

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