Inflation rate drops to four-year low at 2.2%

The inflation rate has dropped to 2.2 per cent, its lowest level in four years, according to new figures from the Central Statistics Office. Inflation is now less than half the levels it was at the start of the year.

On a monthly basis, consumer prices remained unchanged in November.

Inflationary pressures have eased considerably during the year and the annual rate eased to 2.2 per cent in November from 2.3 per cent the previous months. The annual rate has now more than halved from the 4.8 per cent recorded last January and the overall levels of prices last month was little changed from March.

During November there were increases in the prices of some education and training courses and clothing and footwear, while higher doctors' fees pushed up health costs. These increases were offset by falls in the costs of restaurant and hotel services, transport - due to a fall in petrol prices and some fares - and a range of miscellaneous goods and services including motor insurance.

Services remain the main sources of inflation, with the annual increase here running at 3.1 per cent compared to 1.3 per cent for goods. The other main driver of inflation has been the rise in alcohol and tobacco prices, up 10 per cent on the year, partly due to increases in excises in last year's budget.

The Taoiseach, Mr Ahern, said that the reduction in the rate of increase of the consumer price index was good news for the economy and that the measures announced in this month's Budget would underpin low inflation next year.

However, Mr Richard Bruton, the Fine Gael spokesman on finance, said the Government was now responsible for 100 per cent of inflation over the past 12 months, taking into account its contribution to indirect taxes and prices increased at State-owned utilities.

Falling mortgage rates have contributed to the drop in the inflation rate this year. These are excluded in the EU harmonised index of consumer prices, which rose at an annual rate of 3.3 per cent in November. This remains well above the 2 per cent average in the euro zone and the 1.8 per cent average for the wider EU.

The inflation gap with the rest of the EU was narrowing, a statement from IBEC said, and the Budget changes "should not unduly drive up prices".

However, Mr Aebhric McGibney, its senior economist, said the Government must continue to focus on reducing inflation below the target rate of 2 per cent. "Inflation in the public services continues apace and is impeding the fall in the services component of the consumer price index," he said.

Economic forecasters welcomed the figures, though there is a divergence of views on the likely inflation rate for next year. Mr Jim Power, economist at Friends First, declared that "the battle against inflation is being won" and forecast that the average inflation rate next year could be 2.1 per cent.

At IIB Bank, economist Mr Austin Hughes believes economic recovery will lead to some upward pressure on the inflation rate in the second half of next year and he is forecasting a 2.6 per cent average for the year.