Thursday, December 12, 2013

Inflation is near zero but not in all sectors

Today’s CPI release from the CSO puts the headline rate of inflation at +0.3 percent.  However, that is being dragged down by mortgage interest (-6.0 percent) and energy prices (-2.8 percent).  These make 15 percent of the overall index.  If we strip those out to get a measure of ‘core’ inflation we see the following.

CPI Core Inflation

Core inflation is running at around +1.0 percent but this in itself is driven by some fairly particular price increases.  Details of these are below the fold.  The pattern of where the price increases in the Irish economy are coming from should be easy to identify.

1. Off-License Alcohol (2.5% of the index; prices up 8.4%)

Alcholic Beverages

2. Licensed Premises Alcohol (6.7% of the index; prices up 5.9%)

Licenses Premises

3. Cigarettes & Tobacco (2.9% of the index; prices up 4.0%)


4. Third-Level Education (1.8% of the index; prices up 6.2%)

Third-Level Education

5. Motor Tax (1.4% of the index; prices up 9.9%)

Motor Tax

6. Railway Travel (0.2% of the index; prices up 4.6%)

Railway Travel

7. Bus Fares (0.7% of the index, prices up 4.7%)

Bus Fares

8. Postal Services (0.1% of the index; prices up 7.5%)

Postal Services

9.  Health Insurance (3.5% of the index; prices up 10.4%)

Health Insurance

10. Electricity (2.3% of the index; prices up 2.3%)


The source of these price increases should be pretty evident.  The categories above make up nearly one-quarter of the index.  The fact that the overall index is almost flat means there are plenty of price decreases elsewhere.  In fact, one of the few price increases not related to the set above is for private rent but the pattern of the increases is completely different.

Private rents (4.6% of the index, prices up 8.2%)

Private Rents

There was no “one-off” decision taken somewhere to increase rents and they have increased month on month over the year.  Outside of government-influenced prices and indirect tax increases there is price deflation in Ireland. The list of prices decreases is extensive:

Food (-0.1%), non-alcoholic beverages (-2.4%), clothing (-4.3%), footwear (-6.0%), housing maintenance (-2.4%), furnishing, carpets and curtains (-9.4%), domestic appliances (-1.4%), purchase of cars (-3.1%), car maintenance (-1.3%), air travel (-10.2%), telephones and communications (-3.2%), radios and televisions (-11.8%), games and toys (-5.8%), sports equipment (-3.8%), gardening and flowers (-9.8%), nightclubs (-1.5%), hygiene, toiletry and cosmetic products (-2.6%), jewellery (-2.6%), house insurance (-3.3%), motor insurance (-9.8%).

The categories listed here make up about 40 percent of the price index. 

Overall inflation in Ireland might be close to zero.  However that masks the detail of what is happened.  Around two-thirds of the index is showing price decreases: mortgage interest, energy products and all the categories listed above.  Around one-third of the index is showing large price increases: sectors with government-influenced prices along with private rents. 

Most of the country is regaining price-competitiveness - but not all of it.

No comments:

Post a Comment