The pace of inflation in Ireland has slowed down to 7% in March, according to figures released by the Central Statistics Office. This is a slight drop from just over 8% in February, largely due to the prices of energy products falling by almost 1% in the month. This could be attributed to the sharp declines in wholesale market prices for gas and crude oil since the start of the year. However, the annual inflation rate for food prices in March was at 13.5%, after increasing 1.1% from the previous month. Meanwhile, consumer transport costs that had only risen by 0.6% from March last year, rose by 2.2% in the latest month.
The CSO release reflects harmonised inflation figures, making it easier to compare price pressures across the EU as a whole. Eurostat is due to publish a full set of national figures on Friday, but some March figures that are already available for Spain and Germany show the same picture of underlying levels of inflation remaining stubbornly high. In Spain, the headline annual inflation rate almost halved to 3.1% in March from 6% in February, after energy prices tumbled. However, a measure of core inflation, which excludes energy and food prices, also fell in Spain in March, but only slightly, to 7.5%. Similarly, in Germany, the headline annual inflation rate in March slowed to 7.8% from 9.3% in February, but underlying inflation was still running at 7.5%.
Analysts say that despite the slight drop in inflation in Ireland, underlying price pressures in the country and across the eurozone could convince the European Central Bank to continue driving interest rates higher. The figures show that price pressures across the Irish economy remain acute, which could be a cause for concern. The German figures, in particular, could strengthen the hand of hawks at the European Central Bank who argue that further interest rate rises will be required to stop underlying inflation pressures becoming embedded, even as household energy costs fall sharply following sharp declines in the wholesale price of gas, economists warn.
Households may derive only limited comfort from the official figures. The annual inflation rate for food prices running at 13.5% in March, after increasing 1.1% from the previous month. Consumer transport costs, which had only risen by 0.6% from March last year thanks to a number of factors including a freeze on public transport tickets, nonetheless bounded 2.2% higher in the latest month. The figures indicate that price pressures across the Irish economy remain acute.
In conclusion, the slight drop in inflation in Ireland may not be enough to convince the European Central Bank to stop driving interest rates higher. Underlying price pressures across the eurozone remain high, and the German figures in particular could strengthen the case for further interest rate rises. While the drop in energy prices has helped ease inflation in Ireland, the annual inflation rate for food prices and consumer transport costs indicate that price pressures across the Irish economy remain acute.