Consumer prices in decline as inflation falls to 12-month low

Inflation fell to a 12-month low in July with overall price pressures expected to remain muted for the foreseeable future.

New figures from the Central Statistics Office (CSO) show prices were 0.5 per cent higher in the year to July and down 0.2 per cent in July compared with June.

Alan McQuaid, former chief economist at Cantor Fitzgerald, forecast an annual inflation rate of 0.6 per cent for 2019, as against 0.5 per cent last year.

"Despite strong economic growth, there is as yet little sign of sustained pressure on the prices front, and this is the same story across the euro zone, indicating why the European Central Bank is in no hurry to increase interest rates," he said.

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The ECB is likely to focus on a further easing of monetary policy when it meets next month, with the key deposit rate likely to go further into negative territory from the current -0.4 per cent.

"Oil prices will be critical in determining the headline inflation outlook over the next 12 months or so, but they remain volatile and hard to predict given the uncertainty over Opec supply and geopolitical tensions in the Middle East, and there are also question marks over global demand," Mr McQuaid added.

According to CSO, the most notable price declines in the year to July were for telephone services and for household-related goods and services. Transport costs were also lower, in part due to falling prices for petrol and diesel.

The largest prices rises recorded were linked to higher rents and mortgage interest repayments, and energy costs. The cost of alcohol and tobacco also rose during the month.

Wage demands

“With the Irish 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,” said Mr McQuaid.

In its most recent Quarterly Economic Bulletin, the Central Bank forecast an average increase in compensation per employee of 3.9 per cent in 2019-2020, as against 2.7 per cent last year.

The main monthly changes affecting the Consumer Price Index last month were decreases in the cost of clothing and footwear, and household furnishings due to the summer sales. Against that, air fares and health insurance premiums were higher than in June.