By Andrew Bushe
DUBLIN – Ireland’s annual inflation rate dropped sharply, to 5.9 percent, in December from a November high of 7 percent as a series of budget measures finally had an impact on soaring prices.
However, the year-end figures from the Central Statistics Office show that annual inflation for the whole of 2000 averaged 5.6 percent, a substantial jump from the 1999 average of 1.6 percent.
Inflation had been increasing since it bottomed out at 1.2 percent in July 1999. The November peak was the highest since August 1984.
An easing of inflation in December had been widely expected by economic analysts.
"There are indications the inflationary trend is moving downward and the figures confirm the strategy on which Budget 2001 is based," the government’s chief whip, Seamus Brennan, said.
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The biggest part of the inflation drop, about 0.8 percent, resulted from a 50p per pack tax increase on cigarettes — introduced in the December 1999 budget — no longer having a direct impact on the consumer price index.
Last month’s budget did not impose any new tobacco taxes.
To help ease inflation, Finance Minister Charlie McCreevy had cut taxes on diesel and gasoline and the standard rate of value-added tax dropped from 21 to 20 percent from Jan. 1 in a further effort to halt the price spiral.
In his budget speech last month, McCreevy forecast that inflation would fall to 4.5 percent this year and to 2.5 percent in 2003.
The Frankfurt-based European central Bank has set a medium-term upper limit for inflation of 2 percent.
The monthly 0.1 percent inflation increase in December compared with 0.4 percent in November.
The most significant monthly price changes in December were a 0.8 percent increase in mortgages and rents, food price rises of 0.6 percent and a 0.5 percent increase in household goods.
A fall in oil prices brought down transport costs by 1.4 percent.
The main annual increases were a 26.2 jump in housing, 10.4 percent higher fuel costs, 6.4 percent dearer transport and 5.1 percent food price increases.
The budget also gave away substantial income tax cuts and welfare benefit increases to fulfill promises in the key national pay deal, the Program for Prosperity and Fairness. It is fundamental to the government’s economic policy.
The deal delivers a combination of pay rises and tax cuts and follows a series of similar deals that have underpinned the Celtic Tiger boom.
Spiraling inflation forced a renegotiation of the PPF in December as it came under increasing pressure from trade unions, particularly those representing public sector workers.