High oil prices drove the yearly rate of inflation to 2.3 per cent in June, an increase of 0.6 per cent on May, according to figures released yesterday by the Central Statistics Office (CSO).
The Consumer Price Index (CPI) for June shows that the increase was due to a number of factors. Many of them were linked to the fact that oil prices peaked early in the month on the back of fears that US crude inventories were too low and that ongoing strife in the Middle East threatened supplies.
The CPI shows that transport costs rose by 1.5 per cent, a result of a 5.2 per cent increase in petrol prices, a 6 per cent hike in diesel charges, an 11.4 per cent rise in boat fares and an airfare increase of 3.1 per cent.
Home-heating oil jumped by 7.1 per cent and bottled gas rose by 1.5 per cent, contributing to an overall increase in housing, water and energy costs of 0.8 per cent.
Economists unanimously laid the blame for the increase on oil prices. Mr Jim Power, chief economist with Friends First, pointed out that inflation had averaged 1.7 per cent for the first six months of the year, but said that it had moved from a March low of 1.3 per cent to a June high of 2.3 per cent.
"The surge in oil prices is the key reason for upturn in prices in recent months," he said. "In the three months since March, home-heating oil prices have increased by 17.7 per cent, while petrol and diesel prices have both increased by 11.2 per cent." He added that petrol was 17 per cent higher than in June 2003.
Mr Colin Hunt of Goodbody Stockbrokers said, considering that oil prices peaked at the beginning of June, the increase was not a surprise. However, he argued that price pressures in the Irish economy remained low, particularly in the area of services, which has had a significant impact on the CPI over the past year.
"Services inflation, which averaged 7 per cent and 4.8 per cent for 2002 and 2003 respectively, currently stands at 2.6 per cent," he said. He predicted that following a further rise in July, the inflation rate should fall during the final five months of the year.
However, Mr Power warned that oil prices posed a continued threat, and stated that they had reached their highest point in a month on Wednesday. He also pointed out that a range of charges controlled by the State had all increased significantly over the previous 12 months.
