The record rise in inflation is likely to hit Northern Ireland harder than other parts of the UK because of the province’s higher poverty levels.
Official figures showed inflation soared to a new record in September as a result of gas and electricity price hikes. The Consumer Prices Index (CPI) reached 5.2%, the highest reading since 1997.
Ulster Bank economist Richard Ramsey said that Northern Ireland may be affected more as the region has the second lowest household disposable incomes in the UK.
“The type of inflation we are experiencing — predominantly food and energy — will affect Northern Ireland more because of these lower incomes, and food and energy are necessity items,” he said.
“You would expect to see Northern Ireland discretionary spending being affected more than the rest of the UK.”
This is already apparent in big ticket items such as car sales, where Northern Ireland is experiencing sharper falls than in the rest of the UK, the economist said.
He noted that Northern Ireland also has more of its population classed as in “fuel poverty”, defined as 10% of income spent on energy.
Last month local power companies put households under increased strain, with Northern Ireland Electricity raising its electricity prices by 33% and Phoenix Gas hiking gas prices by 19%.
Business Telegraph commentator and economist John Simpson agreed increased costs are likely having a bigger impact in the province due to the number of low income earners.
“It is unwelcome and it is more unwelcome in a country where we have more people living on lower average incomes,” said Mr Simpson.
“This is the sort of level of inflation we expected given everything that’s been happening. But there are now very reasonable signs that this may be the peak and we may see it lower in coming months.”
Economists said the CPI figures are likely to mark an inflation peak as the Bank of England’s Monetary Policy Committee will try to avert a severe recession following the current financial turmoil by cutting interest rates.
Bank of Ireland head of economics Alan Bridle believes the signs are positive for the next 12 months.
“Northern Ireland manufacturing businesses are already reporting to us an easing of pressures in raw material costs while households are beginning to see some benefit from lower home heating costs, fuel prices at the pump and the intensified competition between food retailers, all seeking to position themselves as value-for-money providers,” he said.
Some Northern Ireland residents could also benefit as the government increases benefits and pensions after the headline Retail Prices Index (RPI) reached 5%. September’s RPI is used by the government to calculate pension increases for the year.
The headline RPI is also used to calculate increases in benefits such as Jobseeker’s Allowance and income support.