Inflation: Moderating Trend

The CPI index for Ireland rose 2.0 % year on year in April according to the CSO. The figure for the Harmonised Index of Consumer Prices (HICP) used by Eurostat was a gain of 2%. For Ireland these represent a slight acceleration on the March figures which were 2% and 1.8% respectively. In Europe the rate of inflation (HICP) stayed at 2.2% meaning that Ireland’s rate continued to run below the rate of inflation in Europe. Meanwhile in the US, the recently announced figure for April is 2.3% slightly lower than March’s 2.4%

In both the EU and the US the inflation rate is outside the 2% target area set by the respective monetary authorities. This did not deter the ECB from reducing interest rates to 2.25% at its April meeting – the seventh cut since June 2024. Inflation notwithstanding, the ECB is cautious about further cuts because of uncertainty following the Trump administrations tariff policy. In the US, despite the expressed preferences of the incoming administration, the latest figures, together with ongoing evidence of strong economic activity were enough to prompt the Fed at its April meeting to hold interest rates steady at 4.25%.

The second graph shows some detail on the Irish CPI. Inflation in the main upward influences at work in 2023 – housing, transport and food – have all weakened markedly through 2024. But currently Food and Alcohol are running well ahead of the average. Services, especially hospitality, is also rising rapidly and helping to drag the overall index upwards.

The third graph shows the highly erratic trend in industrial wholesale prices dominated by exports, that is, the modern sector. In recent month the index and export sector prices have been falling while home production has been steady at a low level. The decline in wholesale prices and the upward trend in consumer prices underlines the importance of services in the current rate of consumer price inflation.

Oil and gas are critically important commodities and major influences on prices. In most of 2024, gas had been increasing in price while oil has been falling. But since the start of this year prices of both have been falling. Indicators of weak demand in China, the uncertain impact of Trump’s tariff policy and, more recently, the decision by Saudi Arabia to facilitate lower oil prices, are the main influences. The reduction in Houthi attacks on shipping in the Persian Gulf is also a factor.