February 17, 2011
By Staff Reporter
The figures came just before approval was given for astonishing rises of 20 percent and 34 percent in electricity and gas prices respectively, likely to further fuel inflation in the coming winter months.
The inflation rise announced by the Central Statistics Office (CSO) in Dublin showed a rise from 4.2 percent the previous month. Analysts say that inflation could hit 5.5 percent by December or January next year.
Irish inflation is now running at almost twice the average European Union rate of 2.3 percent, and is of concern because it increases costs, making Irish businesses less competitive against other European countries.
The increase is attributed to a number of factors by the CSO, including higher oil prices and interest rates, driving the cost of electricity, gas and other fuels as well as housing by 17 percent over the year. Fuel also increased transport costs by over 5 percent.
Since joining the Euro currency which was adopted as legal tender in 2002, Ireland has benefited from unusually low interest rates despite undergoing record economic growth — usually the time for interest rates to be raised to curb borrowing.
Due to the stagnant continental European economy since the late 1990s, interest rates have been kept low to spark economic growth there, but with interest rates uniform in all Euro currency, the normal brake of higher interest rates to cool the economy and control inflation has not applied in Ireland.
Interest rates have risen by 1 percent in four rises since December by the European Central Bank, which has been worried about inflation in the Euro currency zone, bringing base rates to 3 percent. Ironically however the knock-on effect in Ireland has been to increase inflation further, by raising loan and mortgage repayments in a real estate market with prices at record highs.
While inflation appears to be easing in continental Europe, the increase in Ireland is causing concern as it increases the gap between Ireland and other European countries.
The maturation of tens of thousands of government-sponsored Special Savings Investment Accounts which contain an average of