Inflation ticks higher as clothing and household bills rise in month
Central Bank governor Gabriel Makhlouf: Italy’s bond-yield spread over peers will keep ECB officials on alert.
The annual inflation rate in Ireland ticked higher to 6.4% in September despite numerous interest rate hikes from the European Central Bank (ECB).
Figures from the CSO showed the annual rate increased from 6.3% in August, with food and energy prices seeing a particularly high rate of inflation compared to last year.
Food prices increased 7.5%, with vegetable prices seeing the largest increase of any food category at 11.8%.
Electricity costs increased by 36.6% in the year with gas prices up 23.5%.
Core inflation, which excludes volatile food and energy prices, stood at over 6% in the year to September.
This is down from the August rate of 6.4%.
As a result of the ECB’s decision to sharply increase interest rates from July last year — the latest hike coming last month — mortgage repayments were 49.5% higher than they were in September last year.
In comparison to August, the areas with the most significant price increases were clothing and footwear, up 3.3%, and the cost of electricity, gas, and other fuels which was up 1.1% which was mainly due to an increase in the cost of liquid fuels.
Some prices fell from August, including in recreation and culture where prices dropped 3% due to the lower cost of package holidays.
However, the cost of package holidays are still over 39% higher compared to last year.
Meanwhile, Capital Economics has predicted the ECB will be in no rush to cut interest rates next year even if eurozone inflation were to fall rapidly.
"We expect both headline and core inflation to keep falling over the coming year or two, but think it will take until 2025 for core inflation to get close to 2%," the consultancy said.
"The key point is that even if inflation falls faster and further than we expect, the bank might not start cutting interest rates sooner than we are forecasting."
Meanwhile, ECB officials saw last month’s decision to raise interest rates by another 25 basis points as a "close call", according to an account of their last policy meeting.
"In view of the considerable uncertainty, members highlighted that the decision between raising rates and pausing was a close call, and that tactical considerations also played a role," the account said.
But speaking at a gathering of the IMF and central bankers in Morocco on Thursday, ECB governing council member Robert Holzmann said there was no easy way of getting eurozone inflation back to the ECB's 2% target.
Mr Holzmann is also governor of the Austria central bank.
At the meeting, Central Bank governor Gabriel Makhlouf said that Italy’s bond-yield spread over peers will keep ECB officials on alert.
The Irish governor said that he and his colleagues do have the tools to contain any problems should they occur.
“What’s happening in Italy is both about the market views of domestic tail risk of policy, and also a relative view of Italy against other countries,” he said.
“It’s absolutely something that we, the ECB, will be very focused on.”
Italy has drawn the attention of investors ever since a botched attempt to tax banks was followed up by a budget from Giorgia Meloni’s government that Fitch Ratings has just described as a “significantly loosening” of its plans.
- Additional reporting Bloomberg
