The International Monetary Fund (IMF) last week declared that the global battle against inflation was largely won. Looking at the latest Irish numbers, that might seem like an understatement.
The Central Statistics Office’s (CSO) flash estimate for the harmonised index of consumer prices (HICP) put the annualised rate of price growth in the Irish economy in October at 0.1 per cent. This compares to a euro zone average of 1.7 per cent for the 12 months to September.
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The CSO, which compiles the HICP, also revised down the rate for September to zero from a previous reading of 0.2 per cent. At the peak of the crisis, it was close to 10 per cent.
We can, however, read too much into the headline numbers. For one, the drop-off in inflation we’re witnessing now owes much to base effects. If the inflation rate was particularly high in the corresponding month of the previous year, even a relatively small change in prices will automatically give rise to a low rate of inflation right now.
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Conversely, these base effects will soon drop out of the equation and we’ll probably get a pickup in headline price growth, into which we could also read too much.
The initial price shock was caused by a spike in energy prices and while these energy prices have eased back, they haven’t — particularly in the case of natural gas which accounts for half of our annual energy requirement as a State — returned to pre-pandemic levels.
So yes, we are getting rapid disinflation (a fall in the level of price growth) but not deflation (a sustained period of falling prices). Households can be warmed by the fact that they’re not subject to runaway energy prices any more, but they are still subject to high prices, higher than the ones that existed back in 2019.
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