Economic outlook in Northern Ireland gloomy as inflation takes toll
Published 16/10/2013 | 01:30
The economic outlook for Northern Ireland and other UK regions remains "challenging" thanks to continued high inflation, an economist has said.
Falling fuel prices failed to make a dent on inflation last month as it remained at 2.7%, against expectations of a slight fall.
The effect of the 2.7% rate means that a basket of shopping which cost £100 in September 2012 would cost £102.70 in September 2013.
Lower costs at the petrol pumps were offset by an upward contribution to the Consumer Prices Index (CPI) from air fares, including an increase for domestic flights.
The figures from the Office for National Statistics (ONS) will be disappointing for policymakers hoping to see inflation start to drop towards the Bank of England's (BoE) annual rate target of 2%.
A separate measure of inflation, the Retail Prices Index, fell from 3.3% in August to 3.2% in September.
Petrol prices fell 0.2% over the month, or 0.5p per litre, to stand at £1.37 a litre. This compared with a 2.7% rise for the same period in 2012.
However, a usual decline in air fares at this time of the year was smaller than normal for long-haul and European flights, while domestic flight prices rose.
Prices are still rising faster than wages, which rose on average by 1.1% over the same period, ONS said.
Dr Esmond Birnie, PwC's chief economist in Northern Ireland, said the 2.7% rate was now "well over twice" the eurozone rate of 1.1%, as well as being "stubbornly above" the BoE target.
"That said, September's CPI figure is particularly important as it is used to set the rate for some benefits, such as the state pension and disability benefits.
"However, it is worrying that services' prices increased by 3.4% in the past 12 months and, over the last 15 years, have increased by around 3.7%, year-on-year.
"So, unless we see inflation in services falling sharply, hitting that 2% target will prove extremely challenging," said Dr Birnie.
Danske Bank chief economist Angela McGowan said the steady rate of inflation would mean low interest rates were likely to persist for the foreseeable future.