Inflation Holds At 4.3%, But For How Long?

Ireland's inflation rate has remained unchanged at 4.3% over the past month, according to the latest figures from the Central Statistics Office, but analysts believe a major rise is just around the corner.

The CSO says the rising cost of services, which is up 5.5% in the past year, is the main factor keeping inflation at a high rate, while the cost of goods has risen by just 3% over the same period.

However, although the rate is already above the government's target level, economists are saying a crippling increase in inflation is just around the corner.

The property boom in Ireland, which led to the growth period dubbed the 'Celtic Tiger', was based on affordable credit and low mortgage rates. Economists, such as Chris Payne at the London School of Economics spoke out on Thursday, saying that because of the burst property bubble, with house prices falling rapidly (11% this month alone), property now costs less than the money borrowed during the boom period.

This has led to the present scenario where there is now too much money in the banking system for the original value of property. According to Mr Payne's analysis, each euro, dollar and pound is presently over-valued and a correction will have to take place - namely inflation.

Analysts are also saying that yesterday's half point reduction in interest rates will also antagonise the inflation rate. With the government's present nationalisation and buy-ups, tax payers money is being used to take on financial institutions, which may be worth very little by the proposed period of recovery in 2010.

(DW/KMcA)