Irish consumer prices were up 0.5% in the month in February, giving a headline annual inflation rate of -0.1%, its first negative reading since July 2010. Meanwhile, the HICP rate, the measure used for EU comparative purposes, posted a monthly increase of 0.6% in the second month of 2014, and showed an annual rise of 0.1%, down from 0.3% in January and 0.4% in December.
The main monthly changes affecting the CPI in February were increases in clothing and footwear prices as a result of the ending of the Winter sales. There were also rises in airfares and hotel accommodation over the month. Meanwhile, there was a decrease in the price of alcohol sold in off-licences and supermarkets.
Domestic inflationary pressures in Ireland are likely to remain depressed for some time to come. Sluggish consumer demand will in general continue to put downward pressure on prices in the months ahead. The residential property tax has hit disposable incomes hard, which in turn is weighing negatively on spending power. And it should be remembered that the full-year effect of the property tax will be felt in 2014.
With the euro remaining strong, pushing down import costs, energy and commodity prices still well behaved and wage pressures limited, inflation should remain quite low for the immediate future. However, we do expect an uptick later in the year, with a strengthening labour market likely prompting a gradual rise in wages.
<b><i>Although the global economy is likely to be stronger this year than in 2013, which may eventually lead to higher oil/energy prices, inflationary pressures in general are set to remain well contained, and we see Ireland’s headline inflation rate being below 1.0% again in 2014. Following an average rate of just 0.5% in 2013, we are at this point in time forecasting a similar figure for this year, with if anything the risks tilted to the downside.
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