Falling energy prices are pushing inflation down

Lower energy prices again slowed the pace of annual inflation in Ireland, another sign of an improving economic outlook.

The Central Statistics Office’s (CSO) flash estimate for consumer prices in January showed prices were 7.7 percent higher than a year ago, but down from December’s 8.2 percent.

It was the third straight month that this indicator of inflation fell, suggesting that the worst post-Covid price increases are now in the past.

The CSO Index of Consumer Prices, which measures a slightly different basket of goods than the Harmonized Index of Consumer Prices (HICP) released today, has also fallen since peaking at 9.2 percent in October.

Today’s release also brings Ireland well below the euro-zone average for the HICP, which came in at 9.2 percent in December, compared with 10.6 percent in October.

On a monthly basis, prices are already falling.

Inflation was -x.xpc between December and January, suggesting that the steep price increases seen throughout 2022 are beginning to reverse.

Energy prices continue to drive much of the change, falling 0.1 percent month-on-month despite being 33.1 percent higher than a year ago, meaning the cost-of-living crisis is far from over for most consumers.

Non-energy inflation remained historically high at 5.2 percent, in line with a record core inflation of 5.2 percent in December.

The flattening inflation curve is the latest in a string of positive news for the economy in recent days.

The CSO flash estimate of Irish GDP, launched this week, showed growth of 12.2 per cent in 2022, although much of that is attributable to the volatile multinational corporate sector rather than the domestic economy, which is more accurately measured using modified domestic demand will.

The IMF also raised its outlook for global economic growth for the first time in a year, forecasting that most of the world – with the notable exception of the UK – will avoid a recession in 2023.

That view was bolstered by flash euro-zone GDP figures this morning, showing that the euro-zone economy avoided a contraction in the last quarter of last year, even as household spending contracted.

Nonetheless, the European Central Bank (ECB) will hike interest rates by half a percentage point on Thursday to ensure inflation stays dead and buried.

February’s rate setting is the first of two hikes expected in the first quarter of the year as ECB President Christine Lagarde continues a series of aggressive rate hikes that began in July.

The HICP estimate will be revised when the CSO releases revised numbers next month. Update flash HICP figures for euro zone will be released tomorrow morning.