At 6.2 per cent for the twelve months to end July the latest annual inflation rate was at the top end of economists expectations.
In July consumer prices as collected by the Central Statistics Office to prepare the Consumer Price Index rose by 0.3 per cent. This was in a month when some prices are pushed down by the summer sales. It compares with a fall of 0.4 per cent in July 1999 to give an annualised rate then of 1.2 per cent. The latest figure of 6.2 per cent is well up on the end June 2000 annualised rate of 5.5 per cent.
The latest figure was helped by a fall in clothing and footwear prices - down 9.2 per cent in the month. But there were big monthly prices rises in a number of categories. The main increases were housing, up 4.4 per cent, transport, up 1 per cent, food, up 0.7 per cent, and fuel and light, up 0.5 per cent.
Over the year the main price rises came in the same categories with the addition of tobacco, following the increase in excise duties in the Budget and the services and related expenditure (see Table).
The rise in housing costs follows an interest rate rise in July which pushed up the cost of mortgage repayments, as well as big increases in the cost of home repairs and decorating. Excluding the mortgage interest rate rise would bring the July inflation figure down to 5.9 per cent. In the housing category, prices have risen 10.6 per cent over the year with an 8.7 per cent rise over the last three months.
Higher international crude oil prices pushed up transport and fuel and light costs while in the food category the prices of potatoes, meat and meals out added to the inflation figures. A weak euro added to the prices of goods imported from non-euro zone countries.
Analysis of the food category, which has the largest weighting in the CPI basket accounting for 23 per cent of the Index, shows a 4.1 per cent increase in prices in the twelve months to July. In the last three months food prices have risen by 2.5 per cent. Figures for the 12 months to July shows an 11.2 per cent jump in cereal prices, an 11 per cent rise in the price of tomatoes, a 10.3 per cent rise in dried vegetable prices and a 10.1 per cent rise in bacon prices. Tea prices were up 8.4 per cent, margarine was up 9 per cent, and tinned vegetables were up 9.8 per cent and fresh fish was up 8.8 per cent.
Commenting on the food price figures, Dr Dan McLaughlin of ABN AMRO said the increases were out of line with the experience in Europe and were "a prime and underreported factor in the recent deterioration in Irish inflation". Attributing part of the increase to the weak currency and part to higher agricultural prices, Dr McLaughlin said that there "may not be sufficient competition to ensure that retailers absorb these costs rather than pass them on to the consumer".
Mr Alan McQuaid, economist at Bloxham Stockbrokers, called for a repeal of the Grocery Order which bans below cost selling to combat accelerating food price inflation. Commenting that the focus of the Government action so far has been to freeze alcohol prices while trade unions have highlighted transport and child-care costs, he said people have options about whether to drink, drive or leave children in childcare but that these options did not apply to food.
Mr McQuaid forecast that the inflation rate will be running at 7 per cent or higher before the end of the year, with an annual average annual rate for the year of 5.5 per cent, almost three and a half times the 1999 average figure of 1.6 per cent.
"The short term outlook for Irish inflation is not good, and it could hit 7 per cent or higher before year-end, but base effects alone will ensure that it fall sharply next year, although it still remains a lot higher than the rest of euroland. All in all, we are now forecasting an average inflation rate of 5.5 per cent in 2000 and 4.2 per cent in 2001.
The rate of monthly price increases slowed in July, with a 0.3 per cent in July rise compared with monthly increases of 0.6 to 0.7 per cent between March and June.
The EU Harmonised Index of Consumer Prices, which excludes about 8 per cent of the CPI basket of goods and services but includes tourist expenditures, was unchanged on the month. Over the three months to end April, the increase in this index was 1.3 per cent while the annualised rate in July was 5.9 per cent.
