Inflation in the Irish economy fell to 2.7 per cent in January, down from 3.2 per cent the previous month, providing partial comfort for cash-strapped households. This follows two months of increases in the headline rate of price growth.
The downturn detailed in the Central Statistics Office’s (CSO) latest flash estimate for the harmonised index of consumer prices (HICP) comes amid a significant decline in energy prices internationally, which had driven inflation lower in recent months.
Inflation was estimated to have fallen by 1.4 per cent month on month, the CSO said. Energy prices decreased by 0.8 per cent since December and by 7 per cent on an annual basis. Transport costs, including air fares, were also down by 4.5 per cent in the month.
The HICP excluding energy and unprocessed food, a measure of underlying inflation, is estimated to have increased by 3.8 per cent since January 2023.
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The Irish numbers will feed into wider euro zone inflation data due out on Thursday, which is also expected to show a decline in inflation for January after an uptick in December.
The figures are likely to fuel speculation that the European Central Bank (ECB) could start cutting interest rates earlier than expected.
ECB policymakers are, however, concerned that elevated levels of pay growth as workers seek a restoration in real income may keep inflation above its 2 per cent target rate for longer.
German inflation also eased slightly more than expected in January to 3.1 per cent, preliminary data from the federal statistics office showed on Wednesday, also helped by a drop in energy prices.
German consumer prices, harmonised to compare with other European Union countries, had risen by 3.8 per cent year-on-year in December.
“The drop in German inflation will fuel speculation about an early European Central Bank rate cut, but underneath a favourable headline inflation there are still enough price pressures to worry about,” ING’s global head of macro Carsten Brzeski said.
Economists pay close attention to such data as Germany and France publish their numbers ahead of expected euro zone inflation statistics on Thursday.
French data showed EU-harmonised inflation falling to 3.4 per cent in January from 4.1 per cent in December. “It’s unclear if this suffices to see tomorrow’s print for the whole block coming in below consensus expectation of 2.8 per cent,” said Mateusz Urban, senior economist at Oxford Economics, referring to German and French inflation data. “But if so, this would raise the odds of an April ECB cut.”
While the HICP is used to allow comparisons across euro zone countries, the official measure of Irish inflation is the Consumer Price Index (CPI). That put the headline rate of inflation in Ireland at 4.6 per cent in December. – Additional reporting by Reuters
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