What went up must come down
Published 16/12/2010 | 07:25
IF you want to know why prices are so much higher here than the EU in general, look no further than disposable income and consumption. The latest figures from the EU statistics service Eurostat show that personal spending was 13pc higher than the EU average at the height of the boom in 2007. It is inevitable prices reflect ability to pay. They rose as our income soared, and they have been coming down as incomes fall.
Last year spending was just 2pc above the average. This is a slow and painful process. The latest statistics go only as far as 2009 and the process continued this year. In the first 11 months, Irish prices fell by 0.8pc, while those across the EU rose more than 2pc. A difference of 3pc is welcome, but the gap was 30pc.
Everyone would welcome cheaper prices, but few recognise how they come about. Getting costs down means pressure on wages, jobs and profits. It is tempting to think it could all be done by cutting profits. There is scope for that in some areas, but mostly deflation is a very unpleasant business.