Source: CSO

The CSO reported today that Irish Consumer Prices in February, as measured by the CPI, increased by 1.2% in the month. This compares to an increase of 0.8% in February of last year. As a result, the annual rate of inflation increased to 4.8%, up from 4.3% in January 2008.

The EU Harmonised Index of Consumer Prices (HICP) rose by 1.2% in the month, compared to an increase of 0.9%in February 2007. The annual rate of inflation, as measured by the HICP, increased from 3.1% in January to 3.5% in February.

The most notable changes in the year were increases in Housing, Water, Electricity, Gas & Other Fuels (+12.0%), Food & Non-Alcoholic Beverages (+8.5%), Education (+5.9%) and Health (+5.7%). There were decreases in Clothing & Footwear (-3.3%) and Furnishings, Household Equipment & Routine Household Maintenance (-1.5%).

The annual rate of inflation for Services was 5.6% in February, while Goods increased by 3.9% in the year.

The most significant monthly price changes were increases in Clothing & Footwear (+12.7%), Furnishings, Household Equipment & Routine Household Maintenance (+2.8%), Food & Non-Alcoholic Beverages (+1.8%), Health (+1.0%), Transport (+0.8%) and Housing, Water, Electricity, Gas & Other Fuels (+0.7%).

The main factors contributing to the monthly change were as follows:

• Clothing & Footwear and Furnishings, Household Equipment & Routine Household Maintenance increased due to a recovery in prices following the traditional January Sales.

• Food & Non-Alcoholic Beverages rose due to price increases in a wide range of products including milk, meat, bread and cereals.

• Health rose due to an increase in doctors’ fees.

• Transport rose due to increases in airfares and motor taxation.

• Housing, Water, Electricity, Gas & Other Fuels rose due to increases in average mortgage interest repayments and private rents.

The CPI excluding tobacco index for February was up 1.3% in the month and up 4.8% in the year. The CPI excluding energy products index was up 1.5% since February and increased by 4.5%in the year. The CPI excluding mortgage interest increased by 1.3% in the month and rose by 3.4% in the year.

Disappointing rise in February inflation - IBEC

IBEC, the business lobby group, today said that it was disappointing that inflation had increased in the month of February, following a number of months of falling rates. Today’s figures from the CSO show that the Consumer Price Index increased to 4.8% in February.

Commenting on the CSO data, IBEC Director of Policy, Danny McCoy said: "External factors such as record global commodity prices and further fallout from the international credit crunch are the main reasons for the increase. Food prices jumped by 1.8% in the month and are now up 8.5% in the year – this is a phenomenon that is being replicated around the world and it is impossible for Ireland to be immune from global commodity price trends."

"It is also very disappointing to see that mortgage interest rate costs increased by 1.3% in the month. It appears that the impact of the global credit crunch has meant that some banks raised their variable lending rates in recent months. The market still expects the ECB to cut interest rates in the second half of this year and that should bring welcome relief to householders.

"Unfortunately rising inflation is now a major challenge globally and Ireland’s harmonised index of inflation at 3.5% is about the same as the EU average. There are still a number of factors pointing to lower inflation rates as we move through 2008, however," he concluded.

Pat McArdle, Chief Economist, Ulster Bank commented:

The February CPI outcome was 4.8%, up from 4.3% in Jan and more than half a percentage point above the consensus forecast of 4.2% - the UB expectation was 4.3%.

This outcome reflected a very large bounce in food prices supplemented by a surprisingly strong rebound in general prices following the Christmas sales. In addition, a whole host of more minor items all rounded upwards instead of the usual mix of up and down.

Food, accounts for only 11% of the shopping basket but added 0.2% to the total CPI Feb figure and a full 1% to the annual 4.8% rate. To get such a large impact, the individual increases had to be striking. In Feb alone, the pint of milk was up 7.6%, cheese 3%, beef 3.5%, poultry 3%, bread 2% and breakfast cereals 4.3%. Not surprisingly, the annual rates of food inflation are now quite racy. Flour is up 46%, milk 29%, bread 23% and eggs 20%. There is probably more to come though there are some signs that global food price inflation may be levelling off. The annual rate of increase in food and non-alcoholic beverages was 8.5%, the highest since June 1984. All of the action was in items formerly subject to the Groceries Order.

The rebound in sales prices was also strong. Normally, sales prices fall in January and rise in February. This time, the sales started earlier than usual in Dec, continued in Jan with normal percentage falls but the February recovery was sufficiently strong to offset both the Dec and Jan falls. This is surprising given that retail sales, ex motors, were essentially flat in January. Perhaps the retailers know better but one would not be surprised to see further weak sales in February when we get the stats in a month’s time.

The next category to catch the eye was restaurants and hotels where the usual February rise in room prices occurred. However, this went against the trend of recent months which had seen falls recorded. Apart from that, a number of minor items posted rises that were slightly higher than usual. These included motor taxes, which rose 9.5% following the Budget announcement, and air fares which rose by 29%, the biggest increase in four years. Mortgage interest rates also crept up as banks passed on some of the higher cost of funds that has existed since the credit crunch began last August.

One of the few positives was provided by petrol and diesel prices. These fell by 2% to 3% reflecting the state of play in early February. However, the March CPI will be boosted by the sharp rise in petrol prices that has occurred in the meantime. We now expect the March rate to remain around the 4.8% level. With no sign that food or energy prices will fall back and the ECB reluctant to cut rates, our average forecast for 2008 has been revised up to 3.7%, still a long way below last year’s 4.9% average. The HICP rate rose from 3.1% to 3.5%, putting it, once again, above the euro 3.2% rate.