Belfast Telegraph

Inflation to depress growth with a squeeze on spending

By John Mulgrew

A fresh rise in inflation due to a surge in fuel and clothing prices is likely to depress growth in Northern Ireland and the rest of the UK, according to one economist.

Figures from the Office for National Statistics (ONS) showed the Consumer Price Index (CPI) measure of inflation was 2.9% in August, outstripping economists' expectations of 2.8%.

That brings an end to a momentary pause in June and July at 2.6% and matches levels seen in May this year and June 2013.

Esmond Birnie, senior economist at the Ulster University Economic Policy Centre, said: "The main drivers for this increase were higher prices for clothing and footwear alongside an increase of several pence on petrol and diesel prices.

"The former probably relates to the impact of depreciation of sterling leading to higher import prices.

"Fuel prices reflect changes in the global market and, given the impact of hurricanes on the US oil sector, a further increase in monthly inflation is possible in next month's figures too.

"In summary, just about managing is getting harder, consumer prices are running ahead of annual wage and salary growth.

"As the Ulster University Economic Policy Centre has argued, this is likely to continue to depress the economic growth rate- whether at the Northern Ireland or UK level."

Rising clothing and fuel prices caused inflation to rebound last month, intensifying the squeeze on cash-strapped households grappling with low wage growth.

CPI was last higher in April 2012 when the rate reached 3%.

And homes across Northern Ireland "will continue to feel a squeeze" on living standards, as average earnings fail to keep up with inflation, according to Ulster Bank chief economist Richard Ramsey.

"While GDP growth remains sluggish and below the rates being experienced in most other EU countries, the converse is true for inflation," he said.

"UK consumer price inflation moved up a gear last month with the annual rate of CPI accelerating from 2.6% in July to 2.9% for August - back to the level it was in May.

"The latter represented the highest rate of inflation since June 2013. August's inflation rate was stronger than analysts had been expecting.

"However, this softening could prove just temporary with food producers and retailers expected to pass on price rises to consumers in the months ahead."

Sterling built on earlier gains yesterday following the news and was up 0.7% against the dollar at $1.32.

Against the euro, the pound rose 0.6% to €1.10.

Mike Prestwood, ONS head of inflation, said: "Clothing prices rising faster than last year, along with a hike in the cost of petrol, helped nudge inflation upwards.

"Conversely, these effects were partially offset by airfares, which rose more slowly than during last year's summer holidays," he added.

Belfast Telegraph

Popular