Falls in mortgage interest rates drive consumer price index to 66-year low

LOWER INTEREST payments on mortgages led to a sharp fall in the consumer price index (CPI) in April, taking the annual rate of deflation down to 3.5 per cent.

A 0.8 per cent fall in prices in April means that the cost of living as measured by the CPI is now declining at its fastest pace since May 1933, new data from the Central Statistics Office (CSO) shows.

The main contributor to the annual rate of deflation, which has deepened from a rate of 2.6 per cent in March, was a 39 per cent drop in the cost of servicing a mortgage. Interest rates have plummeted as a result of a series of interest rate cuts by the European Central Bank (ECB) since last October.

However, consumers’ reluctance to spend money prompted heavy discounting by retailers during the month.

Clothes and shoes prices have fallen 11.9 per cent over the past year and fell 3.6 per cent in the month of April alone.

This was by far the largest reduction in this category in any April on record, Ulster Bank economist Lynsey Clemenger said.

As airlines competed to offer special Easter deals, air fares plunged 15 per cent during the month and are now down almost 10 per cent on an annual basis.

Food prices fell 1.1 per cent in April and are now down 1.7 per cent on an annual basis, with further falls expected as a result of supermarket price wars.

However, the cost of petrol and diesel rose during the month by 3.6 per cent and 6.5 per cent respectively, with the rise in diesel reflecting the higher excise duties imposed in April’s emergency Budget. Tobacco prices also increased 3.5 per cent as a result of Budget measures.

Meanwhile, the EU Harmonised Index of Consumer Prices (HICP) increased by 0.1 per cent during the month and is now declining at an annual rate of 0.7 per cent, the same rate as in March.

Ms Clemenger said the deflationary forces last month had been stronger than expected.

“As the consumer strike continues, the outlook is for a further fall in prices in coming months,” she said.

Goodbody economist Deirdre Ryan said Ireland’s rate of deflation should be welcomed in light of the impact of the “austere budgetary measures” on disposable incomes.

Cuts in energy prices, further easing in food prices and continued falls in clothing and footwear prices will “take over the deflationary baton” in the months ahead, she said.