Widely varying price trends are affecting some households more than others, says Austin Hughes
There are very few Irish households not facing significant pressures right now – and come December, the Budget will almost certainly make things worse.
With incomes squeezed, a subdued trend in the cost of living in Ireland in recent years has provided little comfort. The fact that the prices of individual goods and services vary widely also means that some households have seen a fall in their cost of living while others have experienced significant increases.
The Central Statistics Office publishes details of 168 categories of goods and services that make up the typical basket purchased by the typical Irish consumer. Of these, the prices of 87 rose in the past 12 months with 79 showing lower prices and just two remaining unchanged.
The data shows that the average price of foodstuffs rose by just 0.8 per cent in the year to October, but this figure conceals dramatic differences in price trends.
For example, pizzas were 5 per cent cheaper than a year ago, while breakfast cereals were 5 per cent dearer. Beef was 7.3 per cent more expensive but frozen fish was 10.8 per cent cheaper. Fruit juices were 6.3 per cent dearer, but the price of tea was around 1.6 per cent lower.
This is not to say that many households have switched from cereals to pizza for breakfast – but price-conscious and hard-pressed Irish consumers are much more likely to change what goes into their shopping baskets in order to make ends meet. In many instances, these changes reflect demand and supply of raw ingredients. That said, the pricing policy of retailers and changing habits of consumers also played some role.
If there are signs of 'guerrilla warfare' between consumers and retailers in grocery, the impact of demand in areas where consumers have discretion over whether or not to buy also seems evident from weakness in prices in areas such as furniture (down 6.3 per cent). Restrictions on spending power are also hinted at in lower ticket prices for sporting events and club subscriptions (down 4.6 per cent). The post-boom Ireland is also seen in a fall in gardener charges (down 5.6 per cent).
Relentless improvements in productivity and intense competition meant prices of computer hardware and software have continued to fall (down 16.2 per cent). Competition and spending constraints also meant toys and games showed a drop (down 5.1 per cent).
Of course, not all prices are tumbling. Part of the reason prices are weak in areas of discretionary spending is necessities are rising significantly. This is seen in fuel costs with gas prices up 9.3 per cent and electricity bills up 8.7 per cent. Motoring costs are also rising with fuel up 11.5 per cent and motor tax up 10.8 per cent.
While lower mortgage costs (down 18 per cent) have helped some families, increases in health insurance costs (up 15.9 per cent) and third-level education (up 6.5 per cent) emphasise the pressure being faced by formerly 'comfortable' Irish families.
For those with some purchasing power left, the general weakness of domestic demand means there are bargains to be had. However, for those struggling, sharp increases in many necessities mean the squeeze on spending power remains intense.
Austin Hughes is the chief economist with KBC Bank