New data released by the Central Statistics Office (CSO) has revealed that Irish factory gate prices for electricity experienced a significant annual decrease of almost 36% in June. This decline is in line with similar drops across Europe. However, despite this decrease, experts have stated that it will not be enough to prevent upcoming interest rate hikes.
The overall Energy Products Index, as indicated by the CSO Wholesale Price Index, saw a decrease of 33.5% during the same period. This decrease can be attributed to the warmer weather experienced in June. Economist Jim Power noted that while the energy component of inflation is declining sharply, it will not deter the European Central Bank (ECB) from implementing their anticipated interest rate hike.
The ECB is expected to convene next week to introduce its ninth successive interest rate hike since it began tightening monetary policy in July of last year. The aim of these hikes is to combat persistent inflation, which has been further exacerbated by Russia’s invasion of Ukraine. Power predicts that the ECB will likely impose another interest rate hike following next week’s announcement, as non-energy inflation remains too strong for their liking.
Power stated, “The news on headline inflation over the coming months is good but it will not be sufficient to deter the ECB and indeed the Federal Reserve and Bank of England from increasing rates a couple more times.”
Last week, ECB hawk Klaas Knot suggested that officials may consider pausing their interest-rate hike campaign. He stated, “For July, I think it is a necessity, for anything beyond July it would at most be a possibility but by no means a certainty.”
Since last summer, the ECB has already raised interest rates by 4%, directly impacting approximately 200,000 tracker mortgage customers in Ireland.
In addition to the decline in electricity prices, the CSO data also revealed that annual domestic producer prices for manufactured goods were on average 3.9% higher in June. Specific food items experienced price increases, with fruit and vegetables rising by 16.3%, fish and fish products increasing by 13.2%, and bakery goods going up by 4%. However, dairy product prices saw a decrease of 13% during the same period, along with a 7% drop in vegetable and animal oils.
Other notable changes in producer prices included a 17.2% increase in beverages, a 10% rise in other non-metallic mineral products such as glass, ceramics, cement, concrete, and stone, and a 7% climb in clothing prices.
Wholesale prices for construction products also saw an increase of 6.5% in the 12 months leading up to June. This indicates that ongoing challenges continue to hinder housing output. Materials such as structural steel fabricated metal experienced a significant rise of 32%, while plaster increased by 28% and cement jumped by 24%.
On a monthly basis, wholesale price inflation saw a small increase of 0.5% in June compared to the previous month. Wholesale electricity prices, however, increased by 11.3% during the same period.
Electric Ireland, a leading electricity provider, suggested that high bills persist due to wholesale prices remaining significantly higher than in 2020. They stated, “While forward wholesale prices have fallen in recent months, particularly since their peak in autumn 2022, they are currently in the region of 300% higher than in 2020.”