Predictions that inflation will ease after rise of 2.8% in October

THE RATE of inflation rose for the third consecutive month in October, although analysts have predicted it may ease in coming months as the euro zone economy retrenches.

The consumer price index climbed by 0.3 per cent last month, bringing the annual rate of inflation to 2.8 per cent in October, up from 2.6 per cent in September, according to figures released by the Central Statistics Office .

The harmonised index of consumer prices, also released yesterday, showed that Ireland had the lowest annual rate of inflation among EU member states. This will significantly boost Ireland’s competitiveness, according to Bloxham Stockbrokers.

Last month’s increase in consumer prices was primarily driven by a 7.5 per cent rise in education costs, reflecting higher third-level education costs at the start of the academic year.

Housing and utility costs such as gas and electricity were 1.7 per cent higher, while transport costs were down by 0.8 per cent last month, due to lower air fares and petrol prices. Mortgage interest costs rose by 0.6 per cent on the month, with Irish homeowners now paying 18.1 per cent more in interest costs than a year ago.

The harmonised index of consumer prices, which strips out mortgage interest charges and allows comparison with other EU states, also registered an increase, rising by 0.3 per cent last year, and 1.5 per cent on an annual basis.

This week’s interest rate cut by the ECB should help contain inflation, according to analysts, despite the fact that only some mortgage holders will be affected.

The possibility of further monetary easing from the ECB, coupled with domestic inflationary pressures as Irish consumers’ disposable income is hit by further fiscal consolidation, should also result in a curbing of inflation.

Goodbody Stockbrokers noted that price increases in Ireland were largely being led by external factors, while domestic deflation persists, apart from exceptions such as education and insurance.

“The majority of inflationary pressure continues to come from external sources with the biggest positive contributor to price increases is energy.”

Separately, third-quarter results from the UCD Michael Smurfit Graduate Business School and the Marketing Institute of Ireland’s consumer market monitor found that consumer confidence weakened in the third quarter to -24 in September, a significant drop compared to both Britain and Europe for the same period.

Retail spending was down by 3.1 per cent in the third quarter.

Household borrowing declined by 20 per cent to €128 billion by September 2011, while total lending to private households was -4 per cent lower on a year-to-year basis.

The report also noted that VAT receipts, which are directly related to spending in the general economy, are down 4.5 per cent for the 10 months to the end of October 2011, representing a loss of €383 million to the exchequer.