INFLATION RETURNED to the economy in August largely due to an increase in mortgage interest costs and price increases in clothing and footwear following the traditional summer sales.

The Consumer Price Index (CPI) increased 0.7 per cent during the month of August, according to Central Statistic Office figures. The index was up 0.2 per cent on an annual basis, the first annual increase since December 2008.

The EU Harmonised Index of Consumer Prices, which is calculated using a different sample of goods and services, increased by 0.2 per cent in August.

The most significant monthly price increases came in clothing and footwear (+3.7 per cent), housing, water electricity, gas and other fuels (+3.5 per cent) and transport (+0.5 per cent). Offsetting these increases were falls in food and non-alcoholic beverages (-0.3 per cent).

The increase in inflation figures follow a stabilisation of consumer prices in July, when they remained unchanged from June.

Reacting to the figures, the Irish Small Medium Enterprises Association (Isme) called on the Government to tackle State-influenced business costs that exceeded the rate of inflation.

“By any benchmark we in Ireland have higher business costs than our international competitors,” Isme chief executive Mark Fielding said. “Unless the Government addresses this vital issue, the economy will remain on continued life support.”

Alan McQuaid, economist with Bloxham Stockbrokers in Dublin, warned against assuming the threat of deflation had gone away completely.

“A rebound in some commodity prices and stabilisation of core inflation rates suggest that the immediate risk of deflation has diminished, but it remains a real threat in just about every major economy,” he said. “Economic momentum is fading in much of the world . . . and tighter fiscal policy will only add to the disinflationary pressures during the next year or two.”