Inflation Rate Rises By 0.5pc

Business & Finance - Economy

Thursday, 14 October 2010 12:13

Written by Noel Cotter

IBEC, the group that represents Irish business, today said that the latest inflation numbers from the CSO indicate that price pressures are set to remain very modest in the Irish economy for some time yet.

Commenting on the latest CSO inflation data, IBEC senior economist Fergal O'Brien said: "Although the consumer price index (CPI) shows that Ireland has now exited the period of deflation, there is little or no price pressure in the economy and only very modest inflation will be experienced over the coming years.

"Following the end of the summer sales in clothing and footwear, we would have expected to see average prices rise marginally in September. However, the CPI was actually lower than in August as falling food, restaurant and other prices more than offset the seasonal bounce back in clothing and footwear prices. The harmonised index, which excludes mortgage interest, remains negative at -1%.

"Continued spare capacity in the economy and the somewhat surprising restrengthening of the euro over recent months will mean that there will be limited price growth in 2011. On average, prices will be down 1% in 2010 and will rise by about 1% next year. Crucially, however, the actual price level in the economy remains well below where it was prior to the crisis and it is likely to be 2013 before the Irish price level returns to where it was in summer 2008. Ireland must continue to use this window of opportunity to restore competitiveness ", he added.

ISME, the Irish Small and Medium Enterprises Association, in response to the latest inflation figures, called on the Government to immediately tackle the costs under their control. The Association warned that unless key costs areas, including transport, waste, energy and local charges are addressed, companies would be forced to close, resulting in further job losses.

According to ISME Chief Executive Mark Fielding, “The Government policy of a Smart economy, based on export driven growth, is nonsense, once they continue to allow state influenced cost increases to undermine competitiveness. Companies are attempting to reduce their costs on an ongoing basis to compete, but are hampered time and again by cost increases introduced by the State. A prime example is the recent 5% increase in electricity prices to pay for some government hare-brained scheme. It is no wonder that our competitiveness is constantly eroding, having dropped four places to 29th in the last 12 months”.

“The cost environment and the subsequent erosion of competitiveness is one of the biggest immediate threats to business. It is vitally important that the root causes of the dramatic increases in production costs witnessed over the last number of years, including Government controlled costs, are brought under control or else we run the risk of continuing to price ourselves out of the market,” he continued.

In conclusion, Fielding outlined, “Serious action is needed to ensure that our current competitiveness trend is reversed so that we are in a position to compete when the world economy eventually rebounds, as it surely will. The Government has a key responsibility in this area and it is imperative that action is taken to control costs under their remit to allow Irish SMEs the opportunity to compete on a level playing field with our international competitors”.

The Director of the Small Firms Association, Avine McNally, has stated “the September inflation figures show that for the main part, inflation is still being driven by increases in public utility costs, such as  housing, water, electricity, gas (8.5% increase).”

“Today’s figures show that costs in some sectors are too high and need to come in line with our competitors Cost competitiveness remains a major challenge for small firms and it is critical for their survival that these costs are brought under control.  Irish small businesses have taken harsh steps to regain cost-competitiveness, but any gains are negated by the costs imposed by the government administered sector.  In the SFA’s Annual Business Costs Survey, the top 6 issues were heavily Government controlled.”

“Government are ignoring a key priority by not urgently tackling the issue of costs. If action is not taken further jobs will be lost and businesses will close,” said McNally.