Higher mortgage and food costs caused inflation to surge to a three- year high in April, according to Central Statistics Office (CSO) figures released yesterday. Prices have now increased significantly for the fourth month running, bringing the annual rate of inflation to 3.8 per cent in April as measured by the Consumer Price Index (CPI), compared with 2.5 per cent in January.
Opposition politicians condemned the figures yesterday, while analysts predicted that a further acceleration was in prospect. The numbers sparked fears among business leaders that trade unions would seek to take account of latest inflation trends in ongoing national pay negotiations.
The overall inflation performance was driven by higher energy costs and the effect of financial institutions passing on last March's interest rate increase by the European Central Bank. Prices in the housing, water, electricity, gas and other category rose annually on average by 13.2 per cent in April. Education and health service costs both rose annually by 4.6 per cent, offsetting moderate or negative price trends for other goods. Transport costs also rose strongly, by 5.6 per cent, affected significantly by higher petrol prices.
"The outlook for the remainder of the year is now worryingly high. With petrol-pump prices still edging up inflation may well stay close to current levels for several months before bouncing to 4.5 per cent at end year," Pat McArdle, chief economist of Ulster Bank, said yesterday.
Minister for Finance Brian Cowen called on the social partners to observe moderation in response to the figures. "The bottom line is we need to be very careful about not putting ourselves in the position of seeking to award ourselves wage rises now that would undermine our competitiveness," Mr Cowen said. He attributed the rise in inflation to the impact of higher oil prices and energy costs.
Fine Gael finance spokesman Richard Bruton said the Government could not blame the rest of the world. "The rest of Europe is not being affected on the same scale, which indicates that someone in the Irish chain is exacting higher profit margins." He also accused the Government of contributing to inflation. "The Government is failing to keep down costs in sectors of the economy which it controls directly. It is also failing to create a competitive environment in sectors where it plays a role as regulator."
The figures were also condemned by Labour Party TD and spokewoman on consumer affairs Kathleen Lynch. "In a period of two years, annual inflation has gone from just over 1 per cent in March 2004 to almost 4 per cent today."
Danny McCoy, the director of economic policy with employers' body Ibec, said that inflation should not be allowed to feed into higher wage claims. "The spike in inflation is worrisome, driven as it is by factors external to the economy. It would compound the difficulty by seeking higher wages that would only chase prices even higher."
But sources at the pay talks said yesterday the continued rise in inflation would put more pressure on the employers' body to move from its insistence that any increase should be in "low single figures". Similarly, union leaders would be under increased pressure to deliver pay rises of at least 5 per cent per year.
The latest inflation figure raised the prospect that the rate could be in excess of 4 per cent by the time union members were voting on a pay deal, most likely in June, one source suggested.
The latest Harmonised Index of Consumer Prices (HICP), which excludes the impact of mortgage payment costs to make inflation comparable across EU countries, puts Ireland's inflation rate at 2.8 per cent, compared to 2.1 per cent for the EU.