Climbing inflation could spark new cost of living crisis, says economist
A cost of living crisis could be on the way for Northern Ireland after inflation reached 1% in September, an expert has warned. The rising cost of clothes, restaurants and hotels, which is expected to climb further, has pushed up the cost of living, with the result that inflation is at a near two-year high.
The Consumer Price Index (CPI) hit a higher-than-expected 1.0% in September - the same level as November 2014, and up on 0.6% in August.
An increase of 0.9% had been expected.
Ulster Bank chief economist Richard Ramsey said the public had been enjoying low inflation and low prices for the past few years. "But times are changing," he added. "We are set for consumer price rises - particularly food, fuel and energy - rather than the price falls that we have become accustomed to.
"This will squeeze disposable incomes and therefore consumer spending."
With consumer spending making up around two-thirds of economic activity, growth would be slowing down, he added.
"Two years ago, Northern Ireland became all too aware of the cost of living crisis," Mr Ramsey explained. "We look set to become reacquainted with this phrase next year."
Dr David Armstrong, PwC partner in Northern Ireland, said that import prices were feeding through to consumers because of the fall in sterling since the EU referendum vote.
The Office for National Statistics insisted that there was "no explicit evidence" that sterling's slump following the Brexit vote had pushed up prices of consumer goods.
But Dr Armstrong said: "Since the beginning of September, sterling has fallen by a further 8% or so against the euro and the dollar.
"This will continue to push up inflation in the months ahead, and stronger oil prices will add to price rises for energy, transport and domestic households."
The main upward pressure on CPI came from a jump in clothing and footwear prices, especially women's clothes, with garments rising 6% between August and September compared a 3.3% rise in the period last year.
The cost of living was also impacted by price rises at restaurants and hotels, up 0.7% between August and September compared to 0.2% a year ago.
But Dr Esmond Birnie, of the Ulster University Economic Policy Centre, said that while the prospect of leaving the single market as a result of Brexit was causing panic, it could ultimately lead to lower prices.
"Another aspect of leaving the single market would be that the UK would have the option of adopting (unilateral) free trade with not just the continent, but the rest of the world," he added.
"This could reduce consumer prices for imported food, clothing and other manufactured products.
"This would obviously create challenges for the farming and food-processing sector in Northern Ireland, but could benefit the welfare of the UK as a whole by cutting inflationary pressures."