Government blamed for inflation spike

Inflation unexpectedly spiked higher than 5 per cent in February, as a sudden rebound in prices after the January sales added to a range of Government-linked cost pressures.

Figures released by the Central Statistics Office show that average consumer prices rose by 1 per cent between January and February, the largest monthly rise since 1999. The climb confounded forecasters, who had been expecting January's fall below 5 per cent to be sustained over coming months.

Mr Robbie Kelleher, head of research with Davy Stockbrokers, said the February figure came as a disappointment after the "encouraging trend" recorded over the previous three months.

Mr Kelleher continues to maintain that inflation will decline as 2003 progresses but has raised his end-year forecast from 2 per cent to 3 per cent on the basis of the February numbers.

The sharpest monthly rise in February came in clothing and footwear, where reversals in sale prices led to inflation of 12.5 per cent. Tickets for sports and cultural events rose 1 per cent, while increased fees for doctors and dentists contributed to monthly health inflation of 0.8 per cent.

On an annual basis, trends recorded over recent months persisted, with alcohol and tobacco prices rising by 11.6 per cent and education costs increasing by 10.4 per cent. Health charges were 8.8 per cent higher.

Labour Party leader, Mr Pat Rabbitte, urged Government to take a "vigorous and targeted approach" to inflation, calling on policymakers to "stop profiteering and ensure that consumers are not subjected to unjustified increases".

Small business lobby ISME said Government efforts to establish an anti-inflation committee were "derisory" based on the latest figures.

An analysis from Mr Austin Hughes, chief economist with IIB Bank, suggests governmental measures such as VAT and excise duty increases, account for about 2 per cent of the current headline rate.

He believes February's number belies "more broadly based" domestic price constraints however, suggesting that costs in the Republic have yet to respond to economic uncertainties.

He predicts that any drop recorded in inflation this year will be entirely attributable to external economic weakness rather than domestic strength.

IIB is forecasting inflation will average 4.3 per cent this year. This forecast is shared by AIB economists, who also judge that inflation will be squeezed as the year progresses and external influences such as interest-rate reductions and dollar weakness begin to influence prices.

"I think the weight of all the factors should still bring inflation down over the course of the year," said AIB's chief economist, Mr John Beggs.

He said the one issue which threatens to skew all predictions is the price of oil.