Costs of rents and hotel prices result in higher inflation
Prices of the CSO’s basket of goods and services ticked higher in both the month and the year, by 0.4%, amid signs that inflation in services may be starting to accelerate.
The annual rate of inflation had fallen in the previous two months. In August, the annual inflation rate was driven as the costs of landlord rents rose by 0.8% in the month, which meant that rents have climbed 7.3% from a year earlier.
Private rents have already surpassed their peak in the last of the boom years, in 2008, by around 15%, according to industry estimates, and the latest figures suggest the housing crisis and the lack of new housing supply is showing little sign of easing the pressure on tenants.
In contrast, costs of renting local authority housing was unchanged in the month but were 1.8% higher from a year earlier.
There was also a 0.2% increase in the cost of mortgage interest rates for variable rate borrowers in the month, although the annual rate showed that mortgage costs have fallen slightly from a year earlier.
Other items in the housing-related costs were mixed. In the month, the costs of electricity and gas — natural and bottled gas — were mostly unchanged or slightly lower. Home heating oil rose by 1.8%, however, and was 9.1% more expensive compared with August 2016.
The costs of a basket of electricity, gas and other fuels was 1.2% higher in the year, according to the CSO figures. The cost of hotel accommodation rose sharply by 2.4% in the month and climbed 4.6% from August 2016.
Meanwhile, prices in restaurants and cafes ticked 0.2% higher in the month and were 2.2% more expensive from a year earlier.
In the run-up to next month’s budget, the Irish Congress of Trade Unions has called on Finance Minister Paschal Donohoe to increase the 9% reduced level of Vat for hospitality and tourism because of its high cost to the exchequer.
Alan McQuaid, chief economist at Merrion Capital, said Mr Donohoe may argue against restoring the rate of Vat back to 13.5% on the basis that the renewed surge of the euro against the dollar, as well as against sterling, may discourage US visitors.
“The story of the (inflation) figures is rents and hotels,” Mr McQuaid said.
The CSO figures show that clothing and footwear prices fell 4.8% in the year, while prices of food and non-alcoholic drinks were 1.7% lower. Mr McQuaid said food prices should arguably have fallen more steeply after the 14% surge of the euro against sterling in the past year.
