September CPI release

The CSO have just published the September CPI figures.  The headline figure is that annual inflation is now running at +0.5%, up from +0.2% in August which was the first positive annual inflation figure since December 2008.

As has been our habit we give a quick look to two inflation figures.

1. Overall inflation rate for all items
2. ‘Core’ inflation rate which excludes mortgage interest and energy products.

Our measure of core inflation has stubbornly remained in deflationary territory.

Core annual deflation is running at –1.41% in September, which is a slight slowing of the rate of deflation from August when it stood at –1.66%.

Mortgage interest decreases (following the ECB interest rate reductions beginning in October 2008) pushed down the overall inflation rate into negative figures earlier than the core inflation rate. Core deflation did not come to pass until May 2009.

In more recent times, mortgage interest increases (following the increases in standard variable rates by Irish banks beginning early this year and the removal of tracker rate mortgages as an option of new customers) have pulled the overall rate back into positive figures earlier than the core rate.  Of the annual inflation rate of +0.5% in September, mortgage interest (6.66% of the overall index) contributed +1.25% to the annual inflation rate.  Excluding mortgage interest alone gives an annual deflation rate of –0.75%.

We further exclude energy prices as they are influenced by factors that do not necessarily reflect the general price trend in the economy.  Energy prices are influenced by:

• International factors that cause the price of our imported energy to change
• Tax changes such as the recent imposition of the Carbon Tax on fuels.

Energy (7.77% of the overall index) contributed +0.66% to the annual rate of inflation.  Again, it can be seen that the annual inflation rate excluding this category is negative at –0.16%.

Removing the combination of mortgage interest and energy products turns the overall positive annual inflation rate of +0.50% to an annual deflation rate of –1.41%.