Belfast Telegraph

Inflation price drops set to fuel our spending

NI consumers will benefit most due to lower earnings

By John Mulgrew

Northern Ireland consumers and businesses are predicted to reap the rewards of record low inflation more than anywhere else in the UK - thanks to a slump in oil and food costs.

And with spending on the key essentials making up a bigger chunk of pay packets here, the new 0.5% low could see a retail boost on the high street, thanks to the added few pounds in people's pockets.

"In my view it probably benefits us more because Northern Ireland has lower average earnings than elsewhere in the UK," Ulster Bank's chief economist Richard Ramsey said.

"We spend a higher proportion of wages on food and fuel - and that's what's falling.

"For consumers, in terms of food, they will notice the pressure has stopped, as well as getting a pleasant surprise when they fill up their car."

The oil price drop could mean drivers saving around £140 a year at the pump.

He said he would also expect a drop in electricity prices "further down the line".

But it comes as the latest figures from the Consumer Council - published here for the first time - show confidence remains low in Northern Ireland, with less than a fifth of the public believing they are better off now than two years ago. The organisation's interim chief executive Aodhan O'Donnell said consumers were yet to experience the old adage of the 'green shoots' of economic recovery.

"People don't feel much improvement and are increasingly concerned about the future," he said.

"There is also a lag between the economy improving, and consumers benefiting."

Their latest research has also shown just a quarter of Northern Ireland consumers expect their financial situation to improve over the next two years. But it's hoped the record low inflation will prompt Northern Ireland shoppers to spend more on the high street for non-essentials, such as clothes, entertainment and household items.

And Northern Ireland businesses - from retailers to tourism and the services sector - could also see gains from the drop.

"Businesses in general will also welcome the fall as it indicates that the Bank of England will probably not need to make an upward move in interest rates until the CPI starts to edge towards 2%," Danske Bank's chief economist Angela McGowan said.

But this could be as good as it gets for Northern Ireland - with 2015 predicted to be the low water mark for the cost of living, according to Richard Ramsey.

"This won't last for ever and 2015 could be as good as it gets," he said.

"For example, it's unlikely we will still be talking about big oil price falls in 2016."

The record low levels now mean Bank of England governor Mark Carney will write a letter of explanation to Chancellor George Osborne - with the rate some way off its 2% target.

Yesterday, Mr Carney acknowledged that while it was "good news in the short term for British households", he warned that inflation could rise to its target over the next two years.

Background

Figures from the Office for National Statistics showed the Consumer Price Index measure of inflation at its lowest since May 2000. The figure - which acts as a measure of prices - is down from 1.0% in November, helped by a drop in food and fuel prices. As a result, the Bank of England is not expected to raise interest rates until 2016 at the earliest.

Belfast Telegraph

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