Inflation in the Irish economy rose to 3.2 per cent in December, up from 2.5 per cent the previous month, maintaining the price squeeze on households and dampening hopes of a quick end to the inflation crisis.
The upturn in price growth detailed in the Central Statistics Office’s (CSO) latest flash estimate for the harmonised index of consumer prices (HICP) comes despite a significant decline in energy prices internationally, which had driven inflation lower in recent months.
The increase in December was linked to higher transport costs, including airfares, which rose by 0.7 per cent month on month.
The Irish numbers will feed into wider euro zone inflation data due out on Friday, which is also expected to show an increase in headline inflation for December after several months of slower growth. German inflation also rose in December due to base effects, putting a temporary halt on the downward trend seen in the last months.
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The figures are likely to dampen speculation that the European Central Bank (ECB) could start cutting interest rates as early as March as some market analysts had forecast.
ECB policymakers are, however, concerned that elevated levels of pay growth across the bloc may keep inflation above its 2 per cent target rate for longer.
The CSO said the latest HICP is estimated to have risen by 3.2 per cent in the 12 months to December, down from a trend rate of 2.5 per cent in November. Prices were said to have risen by 0.4 per cent in December.
Energy prices were estimated to have fallen by 2.6 per cent in the month and decreased by 6.4 per cent over the 12 months to December. Food prices, meanwhile, were steady on the month and were up by 5.2 per cent in the last 12 months.
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The HICP excluding energy and unprocessed food, a measure of underlying inflation, is estimated to have grown by 4.3 per cent since December 2022.
While the HICP is used to allow comparisons across euro zone countries, the official measure of Irish inflation is the Consumer Price Index (CPI).
The latest CPI for November put inflation in the Irish economy at 3.9 per cent. The disparity between the two rates reflects the inclusion of mortgage interest in the CPI.
ECB chief economist Philip Lane said last month he expected euro zone inflation to increase in December and to remain above the central bank’s target rate for all of 2024.
Minutes of the US Federal Reserve’s December meeting, meanwhile, indicated a growing sense among policymakers that inflation was under control and raised concerns about the risks of “overly restrictive” monetary policy on the economy.
They suggested “many members endorsed the ‘higher rates for longer’ narrative while those that projected rate cuts in 2024 viewed cuts coming later in the year”, said Qunicy Krosby, chief global strategist for LPL Financial.
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