Inflation eased a touch in December, bringing the annual rate of price increases for 2004 as a whole back to pre-boom levels and close to the euro-zone average.
The Central Statistics Office (CSO) said yesterday that inflation had fallen from 2.9 per cent in November to 2.6 per cent in December. This left the average inflation rate for the year at 2.2 per cent, compared with 3.5 per cent in 2003. The decline was welcomed by the Minister for Finance, Mr Cowen, who said his decision to avoid increasing excise rates in the 2005 Budget should help inflation this year.
Mr Cowen's policy of steering clear of indirect tax increases began to show its positive effects in the December rate, which was pushed down as unhelpful base effects from Budget 2004 fell out of the index.
The CSO figures show prices across the economy rose by 0.1 per cent between November and December, compared to growth of 0.4 per cent in the same month of 2003, when a number of indirect tax hikes were applied.
The biggest monthly rise came in electricity, gas and other fuels, where prices rose by 1 per cent. This increase would have been more pronounced but for falling prices for home heating oil.
The same sector provided the highest annual price increase of 8.4 per cent in December.
Mr Cowen pointed out that the State cannot control the rate of inflation because "external factors" act as the biggest driver behind price growth. "We can, however, seek to ensure that our domestic cost base does not add to it. That is why we need sensible income policies and a greater role for competition in the economy. This is the way we can best protect jobs and living standards," Mr Cowen said.
One of the most striking features of the latest figures is the divergence between annual inflation in the services sector, which stood at 4.2 per cent in December, and inflation in goods, which was 0.9 per cent.
Economists at Goodbody Stockbrokers said it was "no surprise" that the areas which have experienced the least competition, such as health, education and transport, are the ones now contributing the main increases in the overall inflation level.
Mr Alan McQuaid of Bloxham Stockbrokers said the Government must take responsibility for price rises in areas such as refuse collection, toll bridges and bus and rail. The Small Firms Association said the final figure for 2004 boded well for 2005, provided there was no let-up in policy on eliminating the inflation differential between the Republic and the rest of the euro zone.
