Monday 19 August 2019

Weaker phone prices push inflation to 12-month low

Spending: Irish price pressures likely to stay muted, according to economist Alan McQuaid. Photo: Bloomberg
Spending: Irish price pressures likely to stay muted, according to economist Alan McQuaid. Photo: Bloomberg

David Chance

Inflation hit a 12-month low in July, dragged down by a drop in costs for telephone equipment and services, and by weaker oil prices, according to the Central Statistics Office.

The rate fell by 0.2pc in July from June and was up by just 0.5pc over the past 12 months.

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“Despite the strong economy, I think price pressures are likely to remain muted. This was the lowest annual inflation rate since June last year and I reckon it will drop closer to zero before year-end,” said independent economist Alan McQuaid.

“Online shopping has a lot to do with it and retailers are clearly under pressure,” said Mr McQuaid, who is forecasting annual inflation of 0.6pc for this year.

The CSO said the biggest factor behind the fall in telephone-associated prices was a dip in the cost of equipment.

Inflation across the eurozone has been weak and stuck well below the European Central Bank’s 2pc target for more than five years. Weak price pressures are among the reasons behind the plans from the ECB to cut interest rates and reintroduce bond purchases, a move that could come as early as September.

Despite the sharp decline in headline inflation, which was running at a positive 1.1pc in June, services inflation continued to show robust growth, at 0.6pc on the month and 2.2pc over a 12-month period.

Inflation in Ireland has run below the eurozone average, thanks in part to a weak pound, which has cut the cost of imports from the UK. The eurozone rate was 1.1pc in July, according to an initial estimate by Eurostat, down from 1.3pc in June.

Low inflation across the developed world and slowing growth have pushed yields on many sovereign bonds deep into negative territory, with Ireland’s 10-year issue briefly joining them on Monday.

The Federal Reserve in the United States has already delivered its first interest rate cut in 10 years, while central banks across Asia cut interest rates this week by much more than expected in the wake of the US move.

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