Ireland’s economy saw a decrease in inflation to 3.4% in February, a slight drop from the 4.1% annual rate recorded in January. This comes as some relief to households, though core inflation, which discounts unsettled food and energy costs, sustained a high of 4.6%. Remarkably, monthly prices in February elevated by 1% after a 1.3% fall the month prior.
The European Central Bank (ECB) has made it clear that it will not commence lowering interest rates until there is a consistent decrease in core inflation, which is predominantly influenced by service sector price growth. Policymakers express concern that a consistently high pay growth, aimed at restoring real income for workers, may result in inflation persistently surpassing ECB’s target rate of 2%.
According to the most recent Consumer Price Index (CPI), compiled by the Central Statistics Office (CSO), headline inflation has observed a decline for the third month in a row, a sign of a broad decrease in pricing pressures in Ireland’s economy, largely due to international slump in energy prices.
In February, the sectors witnessing the most significant monthly drops were alcohol and tobacco (-0.7%) and communications (-0.3%). These were the only sectors showing a decrease when compared to January. The sectors that experienced the greatest price spikes were clothing and footwear (+3.4%) and transportation (+3%). The CSO attributed the spike in clothing and footwear to a rebound from sales.
Electricity and gas prices, primary contributors to the initial surge in prices, dropped by 16.4% and 12.9% respectively over the year, according to the CSO. However, mortgage interest prices have escalated by nearly 28% year on year, reflecting the effect of modifications in ECB’s interest rates.
Regardless, this marks only the fourth occasion since September 2021 where the yearly inflation rate was under 5%. The harmonised index of consumer prices (HICP) latest preliminary estimate by the CSO sets Ireland’s economy’s inflation at 2.2% in February.
The HICP, an index showcasing consumer pricing, enables comparisons throughout nations within the euro zone thanks to its harmonisation. The rate of its fall has been steep, primarily because it excludes mortgage interest repayments – a feature included in the consumer price index. The rise in these repayments correlates directly with the increased interest rates.