Belfast Telegraph

Hike in energy prices to halt fall in inflation

By Holly Williams and Margaret Canning

A fall in inflation to its lowest level in nearly three years will be short-lived due to rising energy prices, Northern Ireland economists have said.

Official figures from the Office of National Statistics showed that consumer prices index (CPI) inflation fell to 2.2% last month, down from 2.5% in August and the lowest level since November 2009.

But gas and electricity price hikes are expected to push it higher over the next few months after four of the "big six" energy firms in the UK announced price rises.

Experts predict energy bills, combined with rising food and petrol costs, will send inflation back up past 2.5% and even as high as 3.5%, before falling again later in 2013.

Northern Bank chief economist Angela McGowan said the fall in inflation was a welcome trend.

"Any support for local retailers and the hospitality industry in the run up to Christmas will be greatly appreciated, and falling inflation should certainly contribute by boosting customer demand," she said.

"The slow but steady decline in inflation that we have seen during 2012 is helping to take the strain off household budgets. The impact can also be seen in Northern Ireland's improving consumer sentiment levels."

While she predicted inflation would keeping falling towards the 2% target by the end of the year, uncertainty persisted for the medium term.

"The recent announcements around gas and energy price hikes will undoubtedly have an impact on inflation levels and of course, we can never escape the influence of global commodity markets on local price levels," she said.

Esmond Birnie, chief economist at PricewaterhouseCoopers, described the 2.2% rate as "the low point" of a cycle which would be followed by a rise thanks to energy and food price increases.

But the inevitable future increase did not detract from the present good news.

"Householders will welcome the steady decline as price increases begin to come into line with wages," he said.

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