Inflation at lowest level in three years

INFLATION DROPPED to its lowest level in three years in November, as a combination of lower interest rates, falling energy prices and decreasing domestic demand saw the annual rate of inflation drop to 2.5 per cent.

Economists are now predicting persistent price declines and the prospect of deflation next year.

According to statistics published by the Central Statistics Office, the annual growth rate for the Consumer Price Index fell to 2.5 per cent in November, compared with an annual rate of 4 per cent in October. Last month alone, the Consumer Price Index fell by almost 1 per cent.

Economists say that 2009 could see a persistent decline in the price level of Irish goods and services, which means that the annual rate of inflation could be in negative territory for the first time in over 60 years.

Alan McQuaid, chief economist with Bloxham Stockbrokers, said that "there is now growing recognition that the combination of a credit crunch and recession is more deflationary than inflationary", while Dermot O'Leary, chief economist with Goodbody Stockbrokers, said inflation was now on a "rapid downward trajectory".

This could put Ireland into deflationary territory as early as March of next year, he said, reaching as low as negative 2 per cent at some stage during the year. This would represent the first full-year annual decline since 1946.