Irish consumer prices fall fastest since 1933

The Irish government unveiled a five-year austerity programme earlier this week which put a heavy emphasis on tax hikes to tackle the worst public finances in Europe.

Ireland's Consumer Price Index (CPI) was flat month-on-month in March leading to a 2.6% drop from a year ago, the Central Statistics Office said on Thursday. The figures were in line with expectations.

"(This) will be one of the few things supportive to a household sector that is being hammered at the moment by a combination of little or no wage growth, or in some cases wage cuts, and the particularly unsettling rapid growth of unemployment," Dan McLaughlin, Chief Economist for Bank of Ireland said.

Economists in a recent poll forecast a 3.6% drop in consumer prices this year.

The Irish government anticipates the pace of price decline to accelerate in coming months for a forecasted 3.9% fall in 2009.

A decade-long property bubble made Ireland one of the most expensive places to live or do business in Europe before it burst in 2007, putting the euro zone member at a major disadvantage when it entered recession last year.

Businesses in the private sector are cutting staff, wages and other costs to try and drum up business and the government is hoping that falling energy prices, mortgage rates and food costs will accelerate that process, improving Ireland's competitiveness.

Falling mortgage bills following the latest interest rate cut by the European Central Bank last week, accounted for the majority of the consumer price easing - contributing to 2.1% of the 2.6% month on month annual fall.

"If you look at the breakdown, it seems mortgage interest costs are accounting for an ever-increasing proportion of the overall decline of prices," Deirdre Ryan, economist for Goodbody Stockbrokers said, "In the months ahead you will probably see the effects of that component ease off a bit and we'll see further declines come through in consumer items."

Ireland's Harmonised Index of Consumer prices (HICP), which is used for European Union-wide comparisons, inched up 0.1% compared with February but fell 0.7% from a year ago, the first annualised drop since records began in 1995.