IBEC: Prices set to fall by 4-5%
Employers' group IBEC today said that the rate of deflation will accelerate during 2009, with average prices likely to fall by between 4% and 5%.
"It is now clear that prices are falling right across the economy, with only three categories of consumer items showing any price increases during the past three months," said IBEC senior economist Fergal O’Brien.
"The mortgage interest cuts are a major factor in the annual rate of the Consumer Price Index (CPI) falling to -1.7% in February. However, the drop to just 0.1% in the Harmonised Index of Consumer Prices (HICP), a measure which excludes the mortgage impact, shows that price falls are becoming more widespread.
"The impact of the end of the annual sales period only resulted in modest retail price increases in the clothing, footwear and household sector, which is unusual for February. Significant price falls were also evident in the food sector and in the price of cars which dropped by 4.2% in the month of February alone.
"With further mortgage rate cuts already in the pipeline and the ECB signalling their intention to cut base rates yet again, the CPI is set to fall sharply in the coming months. Planned cuts in gas and electricity prices as well as weak consumer demand will all lead to further price falls during 2009.
"It is vital that the reduced cost of living in Ireland is central to the debate in relation to wages, prices and costs right across the economy. It is important that workers faced with nominal wage cuts this year, recognise that the substantial drop in prices will help cushion the impact of lower pay."
