Inflation in the Irish economy fell to an 18-month low of 5.8 per cent in July as the cost of basic items such as clothing and footwear fell back and the original energy price shock faded.
However, the underlying rate, which strips out volatile energy and food prices, remained stubbornly high at 6.6 per cent, keeping the squeeze on household budgets.
The main driver behind this was higher mortgage interest costs, which were up almost 50 per cent on an annual basis, on the back of nine straight interest rate hikes by the European Central Bank (ECB), the most aggressive series of monetary tightening undertaken by the bank.
Core inflation was also driven by higher transport costs linked to higher air fares, which rose by 8 per cent month on month and by 14 per cent on annual basis.
Higher prices in the recreation and culture sector, which rose by 3.4 per cent in July, were linked to more expensive package holidays and concert tickets.
The latest consumer price index (CPI), the official measure of inflation in the Republic, indicated that the annualised rate of price growth fell from 6.1 per cent to 5.8 per cent in July, the lowest rate since February last year. On a monthly basis, prices rose by 0.2 per cent, the Central Statistics Office (CSO) said.
The agency noted that this is the 22nd straight month where the annual increase in the CPI has been at least 5 per cent.
The division that exhibited the largest price increase in the 12 months to July was housing, water, electricity, gas an other fuels with prices on average up 16.5 per cent.
Prices in this sector rose mainly due to an increase in the cost of mortgage interest repayments, rents, electricity, gas and solid fuels. The cost of electricity increased by 32 per cent while gas prices rose by more than 45 per cent. Mortgage interest repayments were up by 49.5 per cent. “This increase was partially offset by a reduction in prices for liquid fuels, including home heating oil,” the CSO said.
Prices in the recreation and culture category rose by 13.9 per cent year on year. This was linked more expensive package holidays, which increased by 64.4 per cent compared with July 2022.
Transport costs, on an annual basis, meanwhile, fell by 4.5 per cent as a result of cheaper petrol and diesel prices, which declined by 21 and 26 per cent respectively.
“Transport fell primarily due to lower prices for diesel, petrol, services in respect of personal transport equipment and passenger transport by bus and coach. This decrease was partially offset by higher prices for airfares and motorcars,” the CSO said.
The ECB has kept the door open for another rate hike in September in its bid to rein inflation. Underlying price growth has been a key focus for policymakers amid concern the initial price surge has spread out to other parts of the economy and may be driving higher wage demands. The ECB has warned it will keep raising interest rates as long as core inflation is rising.
Separately, US inflation rose 3.2 per cent in July compared to a year ago, reinforcing economists’ optimism that the country is getting inflation under control.
