Prices and inflation rate both fall in July

SUMMER SALES and a slight dip in food prices gave consumers a temporary respite from the rising cost of living last month, as prices fell 0.3 per cent in July.

The annual rate of inflation dropped to 4.4 per cent, down from 5 per cent in June, according to new figures from the Central Statistics Office (CSO).

However, economists, union leaders and opposition politicians warn that consumers will suffer further price hikes later this year.

Inflation is expected to rise again to 5 per cent in August as the impact of the recent European Central Bank interest rate hike is felt by mortgage holders.

Electricity and gas price increases will also keep inflation propped up over the next few months, although a softening in oil prices in recent weeks means the 1.9 per cent increase in petrol prices in July could be reversed.

Fergal O'Brien, economist at business group Ibec, said any attempts to compensate people for higher prices through inflation-linked wage increases was unrealistic and would have "long-term damaging consequences for our economy", while Ulster Bank's chief economist Pat McArdle said the lower inflation rate showed that the Government had been right to let the wage talks collapse.

However, Siptu general president Jack O'Connor said the fall in July's inflation rate did not change its projection for consumer prices to rise by 5 per cent this year.

The average rate of inflation in 2008 has been 4.6 per cent, meaning social welfare recipients who received a 6 per cent increase in the budget have seen little increase in their standard of living, said Labour Party enterprise, trade and employment spokesman Willie Penrose.

"Many workers who accepted 10 per cent increase over 27 months under the Towards 2016 agreement have seen their incomes fall in real terms."

Fine Gael front bench spokeswoman Olivia Mitchell said the cost of Government-controlled services was still rising, with the drop in inflation due mainly to retailers' attempts to entice hard-pressed consumers to spend cash.

Retailers discounted goods by slightly stronger rates than usual, with the price of clothes and footwear plunging 11 per cent compared to an average of 9.8 per cent over the past five years, while the price of furniture fell 2.2 per cent.

Food prices dropped for the second month in a row and were down 0.4 per cent, as supermarkets implemented price cuts made possible by the falling cost of globally traded food commodities.

At a visit to the National Consumer Agency, Minister for Enterprise, Trade and Employment Mary Coughlan said the Government was determined to ensure that consumers got a fair deal in their weekly grocery shopping.

The troubled state of US, British and euro zone economies is being felt in the Republic's tourism sector, where the price of hotel accommodation fell 0.3 per cent in July.

This is the first time in the history of the CSO's consumer price index that the price of hotel rooms has fallen in the month of July, a peak month for the hotel trade.

Inflation watching is all about numbers: page 3; Coughlan orders report to compare prices: Home News, page 5