The pace of inflation fell in December, but evidence has emerged suggesting that the fall was due to exceptional circumstances and that inflation will rise again this month.
According to data released yesterday by the Central Statistics Office (CSO), December's Consumer Price Index (CPI) rose by 2.5 per cent in annual terms.
This compares to a peak of 3 per cent last September, which reflected the impact of the summer's oil price increases on the economy.
Since October headline inflation has slowed as oil prices receded from record highs. December's lower rate reflects falls in petrol prices, which were partially offset by an increase in mortgage repayment costs.
But a leading economist - Ulster Bank's Pat McArdle - said the December figures fail to capture the full impact of higher mortgage repayments, due to delays by commercial banks in passing them on to consumers.
"Had commercial banks been quicker to pass on the European Central Bank's recent quarter point rate hike to consumers, December's inflation rate would have been 2.7 per cent, other things being equal," Mr McArdle said.
He predicted that inflation would rise in January as more commercial banks raised interest rates and petrol prices stabilised.
"January's consumer price index should show inflation rising to 2.9 per cent." The January figure will capture the rest of the mortgage interest rate increases and it will also be affected by higher CIÉ fares and ESB prices. This time, there will be no offset from petrol prices, which have remained unchanged over the Christmas period. Our forecast for January is 2.9 per cent," said Mr McArdle.
Although the reductions in fuel and petrol prices in recent months have caused the rate of price inflation rate to moderate, CSO statistics show that they continue to drive its underlying momentum.
Over half of December's 2.5 per cent inflation rate - 1.4 percentage points - was due to price rises in the aggregate category of housing, water, electricity, gas and other fuels, according to the CSO.
Increases in charges for health, transport and education services also continued to be significant drivers of inflation in December.
Small business group ISME yesterday welcomed the reduction in headline inflation, but said that public sector costs had to be contained.
