Annual inflation at two-year high

The annual rate of inflation last month reached its highest level since November 2008.

Consumer prices rose by 0.9 per cent in February and were up by 2.2 per cent on an annual basis, according to data from the Central Statistics Office.

The most significant prices changes between January and February 2011 were in clothing and footwear, which were up 6.5 per cent and miscellaneous goods and services, up 3.8 per cent.

The increase in clothing and footwear prices was largely due to a rise following the traditional post-Christmas sales.

Prices paid for household equipment and maintenance rose 1.8 per cent during the period while there was a 0.6 per cent decrease in healthcare.

On an annual basis, the most notable changes in prices were in housing, water, electricity and other fuels, which were up 9.5 per cent and miscellaneous goods and services, up 4.8 per cent.

Prices for health and transport rose by 4.1 per cent and 3.5 per cent respectively while there was 4.6 per cent decrease in clothing and footwear prices. A combination of taxes and tensions in Libya have combined to push up petrol prices to a new high of €1.50 a litre this week.

During the 12-month period till the end of February 2011 there was a 2.9 per cent decline in education costs and a 2.6 per cent drop in prices for furnishings, household equipment and maintenance.

The annual rate of services inflation was 2.8 per cent in the year to February, while goods prices increased by 1.4 per cent.

The Consumer Price Index (CPI) excluding tobacco for February increased by 0.9 per cent in the month and was up by 2.1 per cent in the year.

The CPI excluding energy products rose by 0.9 between January and February 2011 and increased by 1.1 per cent in the year while the CPI excluding mortgage interest rose 1 per cent in the month and was up by 1.2 per cent on an annual basis.

Business lobby group Ibec said the figures were largely in line with expectations and driven by external factors.

“There is still considerable spare capacity in the domestic economy and inflationary pressures remain limited. Indeed, prices continue to fall in sectors such as hospitality and recreation," said Ibec's senior economist Reetta Suonpera.

“Although this type of imported inflation will squeeze consumer spending further and will not help businesses serving the domestic market, the price level in Ireland is still about 5 per cent lower than the 2008 peak," she added.

Isme said the prices rises were causing concern for small businesses and called for a reduction in excise duties on fuel to offset inflation.

“With geopolitical uncertainties in Libya and the Middle East, oil prices will remain high, driving inflation higher in the coming months, with the resultant negative impact on the economy.

“The exchequer receives up to 57 per cent of the end cost of oil products, including petrol and diesel, in the form of excise duties including carbon and VAT,” said the organisation's chief executive Mark Fielding.

“The last thing that business and the economy needs is inflationary pressure. Small and medium businesses do not have the option of passing increased costs on to their customers and therefore have to take the hit on their bottom line,” he added.

Separately, the Small Firms Association (SFA) called on the Government to reduce costs in order to help companies.

“Government now needs to urgently tackle the cost adjustment process which Ireland must undergo in order to make ourselves competitive again and by tackling costs, the Government will contribute directly to the viability of small businesses," SFA director Avine McNally said.