Annual inflation rate falls to 4% in October

The cost of living fell to a two-year low of 4 per cent in October as food and fuel prices declined, leading economists to predict a further easing of inflation next year.

Last month’s reduction did not include the last two European Central Bank interest rate cuts and, because the data was collected October 14th it

did not reflect excise changes introduced in the Budget.

The 0.2 per cent fall in October compared to a 0.1 per cent rise in October 2007 saw the annual inflation rate ease to 4 per cent from 4.3 per cent in September, according to data released by the Central Statistics Office (CSO) this morning.

Brian Devine, economist with NCB Stockbrokers, said he now expects inflation to average at 1.4 per cent in 2009, partly because he believes the ECB will cut interest rates to 1.5 per cent next year.

Pat McArdle, chief economist with Ulster Bank, said a 2 per cent fall in clothing and footwear prices was the largest fall in the month of October on record and was evidence of retailers cutting prices to lure shoppers. Over the year clothing and footwear prices have fallen 6.8 per cent.

Food prices fell in October for the fifth month in succession bringing the annual rate of inflation to 4.6 per cent.

Food prices have halved after peaking at almost 10 per cent earlier in the year, according to National Irish Bank chief economist Dr Ronnie O'Toole.

Prices for housing, water electricity and gas have increased 11.5 per cent during the 12 months but fell 0.2 per cent last month.

A rapidly falling oil price saw diesel prices drop 5.2 per cent and petrol price dip 5 per cent last month, although Dr O'Toole said the full impact of falling oil prices would take longer to be felt.

“The impact on electricity costs will take considerable time to feed through to lower prices for consumers. A fall in gas prices will also take longer to materialise though should be seen next year”, he said.

Last month’s falls brought the annual price inflation for petrol to 5.7 per cent and for diesel to 14 per cent.

Prices for furnishings and household equipment were 0.5 per cent weaker last month, reflecting the ongoing slowdown in the housing market, and these are down 1.6 per cent in the year.

Mr McArdle of Ulster Bank noted with surprise, health costs had fallen last month for the first time in over 10 years. He suggested private hospitals may have cut their prices by more than 2 per cent. The annual rate of health sector inflation in October was 5.6 per cent.

ISME chief executive Mark Fielding said the drop in inflation masked increases in the cost of running a business in the State.

He said over the six-year period to 2008 water charges had increased 104 per cent, waste charges were 158 per cent higher and electricity prices were up 98 per cent.

Elsewhere, the Small Firms' Association called on the Government to set an inflation target of 2 per cent.