Inflation rose by 0.6 per cent in August following the end of the summer sales, according to the latest figures from the Central Statistics Office.
The increase in the consumer price index (CPI) was slightly higher than predicted, mostly due to rises in the cost of clothing and footwear as well as durable household goods and housing. Annual inflation is now running at 1.4 per cent compared with 1.2 per cent at the same time last year.
According to Mr Jim Power, chief economist at Bank of Ireland, the external environment is no longer as favourable to the Republic and it is destined to stay at the top of the inflation table among euro zone countries.
Higher oil prices globally as well as price rises due to the low level of the pound against sterling are now feeding into the consumer price index, he said.
As a result, Mr Power is increasing his inflation forecast to 2.2 per cent for the end of the year. The current official Government forecast is for inflation to end the year at 1.8 per cent.
On a EU harmonised basis, inflation is running at 2.4 per cent with a 0.7 per cent increase in August. The latest figures for Spain and Portugal saw inflation of 2.1 per cent and 1.9 per cent respectively putting the Republic firmly at the top of the league.
During August, clothing and footwear rose some 3.8 per cent reflecting price increases following the summer sales and the difference between the pound and sterling. Durable household goods such as washing machines and fridges were up 1.3 per cent, largely as a result of the end of the summer sales.
Housing was up some 0.9 per cent reflecting rent increases as well as rises in the cost of repairs and decorations. Increases in fixed-rate mortgages also fed through to the rise.
Higher oil prices contributed as well, with transport costs up 0.8 per cent. Over the past year food price rises have been one of the main contributors to overall price rises. Food is up 2.7 per cent since August 1998 while alcohol is up 3.7 per cent.
Despite rent increases, falling housing costs have been keeping downward pressure on the index, a trend set to continue with the latest cuts in variable mortgage rates. Rising inflation is not the background which the Government would have wanted in the run-up to negotiations on the new national wage agreement.
In addition, according to Mr Power, real price rises are far higher than measured by the CPI. "Most people are facing price rises of up to 5 per cent, particularly for services," he said. "The Central Statistics Office is not capturing changing spending patterns adequately."
The CSO's inflation figures are based on spending patterns up to 1996. Changes since then will not be included until the basket changes again in 2001.
