Sunday 22 April 2018

Inflation to ease in second half of the year

Aideen Sheehan Consumer Correspondent

THE relentless rise in the cost of living is expected to slow later this year, despite annual inflation surging to 3.2pc last month.

Prices are up thanks to rising fuel and mortgage costs, but inflationary pressures should ease in the second half of the year, analysts predicted yesterday.

This will be partly helped by VAT cuts from 13.5pc to 9pc on goods and services related to the tourism industry as part of the Government's job-stimulus plan.

The new rate will apply from July 1 to restaurants, catering services, hotels, admission charges to tourist attractions, entertainment and sports venues, as well as to maps, programmes, newspapers and hairdressing.

IBEC chief economist Fergal O'Brien said higher prices for commodities such as oil had fuelled price rises so far this year, but that inflation rates were likely to ease in the second half of the year, as core Irish inflation remained low.

"The Government's decision to cut the lower VAT rate by 4.5pc on a selected basket of items will feed through to the CPI and about 10pc of the overall basket of goods and services will benefit. This should therefore cut close to 0.5pc off the CPI in a full year," he said.

The inflation rate was likely to fall to 2.5pc for the year and back to 1.5pc next year, he predicted.

Restaurants Association of Ireland president Brian Fallon said he would instruct his members to pass the VAT reduction on to customers as soon as it is introduced.

The latest consumer price index shows that overall prices rose 0.4pc in April. At 3.2pc, annual inflation is at its highest in nearly three years.

Price rises have been mainly driven by steep increases in the price of petrol and diesel and higher mortgage repayments, the latest figures from the Central Statistics Office show.

Goodbody Stockbrokers economist Juliet Tennant agreed that it was outside forces which had driven inflation to a 30-month high.

"Given the weak domestic environment -- particularly in relation to the labour market where wage inflation is unlikely -- we view the increase as transitory," she said.

Higher world fuel prices are not having the expected knock-on effect on Irish food prices which fell by 0.5pc in April.

Fuel

The Irish Small and Medium Enterprises Association warned that rising inflation was a threat to small businesses as exorbitant cost increases undermined competitiveness.

"We need a root and branch review of all business costs, in particular rates, rents, transport, energy and labour costs and a concerted government effort to tackle them," said ISME chief executive Mark Fielding.

He also called for a rebate on excise duties for companies dependent on oil.

The CSO figures showed transport costs rose by 1pc last month alone, while mortgage interest costs rose by 1.4pc.

And the price of some big ticket items continued to fall over the year, with furniture prices down over 5pc, while clothes prices were down 1.4pc and shoes by 5.3pc.

Irish Independent

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