The CSO reported today that Irish Consumer Prices in May, as measured by the CPI, increased by 0.4% in the month. This is the same monthly increase as recorded in May of last year. The annual rate of inflation fell slightly to 5.0%, down from 5.1% in April.
The EU Harmonised Index of Consumer Prices (HICP) increased by 0.3% in the month, compared to an increase of 0.5% in May 2006. The annual rate of inflation, as measured by the HICP, decreased from 2.9% in April to 2.7% in May.
The most notable changes in the year were increases in Housing, Water, Electricity, Gas & Other Fuels (+22.6%), Alcoholic Beverages&Tobacco (+5.4%), Restaurants & Hotels (+4.9%), Education (+4.8%) and Health (+2.8%). There were decreases in Clothing & Footwear (-3.1%) and Furnishings, Household Equipment & Routine Household Maintenance (-2.0%).
The annual rate of inflation for Services was 9.1% in May, while Goods increased by 0.3% in the year.
The most significant monthly price changes were increases in Housing, Water, Electricity, Gas & Other Fuels (+0.7%), Restaurants & Hotels (+0.6%), Food & Non-Alcoholic Beverages (+0.6%) and Clothing & Footwear (+0.6%).
The main factors contributing to the monthly change were as follows:
Housing, Water, Electricity, Gas & Other Fuels costs increased with higher average mortgage interest repayments and rents.
Restaurants&Hotels rose with higher prices for eating & drinking out and accommodation services.
Food & Non-Alcoholic Beverages rose with increases across a range of products including lamb, potatoes, other bakery products and beef.
Clothing & Footwear prices increased with higher prices for both clothing and footwear.
The CPI excluding tobacco index for May was up 0.4% in the month and up 4.7% in the year. The CPI excluding energy products index was up 0.2% since April and increased by 5.1% in the year. The CPI excluding mortgage interest increased by 0.4% in the month and rose by 2.6% in the year.
Comment from Pat McArdle, Chief Economist, Ulster Bank:
Our forecast for the May CPI was 4.95% which rounds to 5% so we will take a small liberty and claim a hit. The surprise was that the May figure was somewhat lower than generally expected. The 5% outturn was below the consensus as most forecasters were expecting 5.1% or more. Though one can never be certain, we now have greater confidence that the CPI rate peaked at 5.2% last January. Despite this, our forecast for the year has not fallen, in fact, it has edged up to 4.9% as we have incorporated another quarter-point rise in mortgage rates in the Autumn. CPI inflation averaged 4% last year and is likely to be within a whisker of 5% this year.
For us, there were few surprises in the May number. The headline rate was 5%, down only marginally. Excluding energy, the rate was 5.1%, implying that energy had a small negative influence - though petrol and other prices rose, there was an even bigger increase last May. Core inflation, i.e. excluding energy and interest rates, was 2.5% (note that some people are making rough estimates of this and are getting slightly different numbers), unchanged from April. Together, energy and interest rates had no impact and the core rate was also unchanged. The fall in the headline CPI rate, therefore, reflects rounding as much as anything else.
Having said that, there were a few surprises in the detail. Food prices continued to grow strongly - in April and May they boosted the CPI by 0.2%. Global food prices are rising strongly - only the Eurozone has escaped - and this trend is likely to continue. Restaurant and hotel prices were also more buoyant than usual in May and rents continued to rise. The rate of increase in rents is now 11.6%, clear evidence of a shortage of supply despite the slowdown in the housing market. These upward influences were offset by slightly smaller-than-usual rises in a range of other items. The latter included a 24% fall in air fares but this had been well signalled some week ago by Ryanair.
The HICP rate was 2.7%, as expected. This compares with 1.9% in the Eurozone. The difference reflects the exclusion of interest rates and some other items from the HICP.