Business Irish

Thursday 19 September 2019

Ireland sees largest drop in industrial prices in euro area

Paul O'Donoghue

Industrial producer prices dropped more in Ireland than in any other country in the Eurozone in September, new figures show.

Industrial producer prices measures the gross monthly change in the trading price of industrial products. It reflects basic prices, and does not take into account taxes such as VAT.

The figures often give an early indication of consumer inflation trends, as prices charged by industrial producers tend to have a knock-on effect in the shops.

Prices fell by 0.3pc in both the euro area and the EU28 in September compared to August.

Year-on-year industrial producer prices were down by 3.1pc in the euro area and by 3.8pc in the EU28.

According to Eurostat, the year-on-year drop in Eurozone prices industrial producer prices was driven by a 9.8pc drop in the energy sector, with falls in the cost non-durable consumer goods and intermediate goods also factoring in. Prices in total industry excluding energy fell by 0.6pc.

The only member states that did not record any decrease during the month of September were Belgium and Malta (both of which saw prices rise by 0.5pc), and France, where prices were up by just 0.1pc.

Ireland saw the largest month-on-month drop, down 2pc, while prices in Slovakia and Lithuania fell 1.3pc and 1.1pc respectively.

Ireland's total industry producer prices were down by over 5pc on a month-by-month basis, although this drop was smaller than those recorded in countries such as Greece and Cyprus.

Despite the fall, the decrease in prices was lower than the contraction recorded in August when the value of industrial goods fell by 0.8pc compared to January in the Eurozone and by 0.9pc in the EU28.

This was the largest drop since January and was more than had been expected.

The figures were evidence of more deflationary pressure in the bloc, which has been struggling to cope with deflation. Deflation can hinder economic growth for a variety of reasons, such as reducing consumer spending.

A recent estimate from Eurostat overall prices in the Eurozone were unchanged in the year to October. That figure is up from minus 0.1pc in the year to September. However that level is still low and will press the European Central Bank to expand its €1.1tn quantitative easing package in December.

ECB head Mario Draghi hinted heavily this month that the central bank will boost its contested bond-buying programme given low inflation levels across the 19 countries that share the euro. A stronger QE programme could involve extending bond buying beyond September 2016, increasing monthly purchases from the current amount of €60bn.

Eurozone deflation has not had a large effect on the Irish market, where both consumer spending and confidence have remained strong. Visa Europe's latest Irish Consumer Spending Index shows that consumer expenditure here rose by 5.4pc in September, compared to the same period in 2014 which represented the 13th month of sustained growth since the index began in September 2014.

In manufacturing the 2pc September decrease followed a 0.9pc fall in industrial prices in August.

It also coincided with a fall in overall industrial activity, which declined by 2.8pc between August and September. However there was still a 20.1pc year-on-year increase in manufacturing production in September.

Irish Independent

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