Energy Prices Drop by 2.7% Over 12 Months to January Amid Inflation Trends

Ireland’s Inflation Rate Sees Moderate Growth While Energy Prices Decline

Energy prices in Ireland have dropped by 2.7% over the past 12 months, according to the latest data from the Central Statistics Office (CSO). This decline in energy costs comes as overall consumer goods and services prices in Ireland increased by 1.5% in the 12 months leading to January, as per the European Union (EU) Harmonised Index of Consumer Prices (HICP).

Compared to December, prices have fallen by 0.9%, marking a slight slowdown in inflation. For context, Ireland’s inflation rate was 1% in the 12 months leading to December, while the euro zone recorded an annual inflation growth of 2.4% for the same period.

Energy and Food Prices Influence Inflation Trends

Despite a 1.2% monthly increase in energy costs, energy prices have experienced an overall annual decline of 2.7%. Additionally, food prices dipped by 0.7% in the last month but rose by 1.4% over the year. When excluding energy and unprocessed food, inflation has risen by 2% since January 2024.

Eurostat is set to release flash estimates of inflation for the euro zone based on EU HICP data for January 2025 on February 3rd, 2025.

Consumer Inflation Expectations and ECB Monetary Policy

Euro zone consumers remain skeptical about the European Central Bank’s (ECB) ability to control inflation within the next 12 months, potentially complicating efforts to adjust interest rates. ECB data released on Friday indicated a consecutive three-month rise in household inflation expectations.

Following a rate cut to 2.75%, the ECB cautioned that weak consumer confidence could weigh down the region’s economy. According to the latest survey, consumers anticipate an annual inflation rate of 2.8% over the next 12 months, rising from 2.6% in November, marking the highest level since July. This figure remains above the ECB’s 2% medium-term inflation target.

Households also expect inflation to average 2.4% over the next three years, aligning with the euro zone’s last inflation reading in December. Inflation expectations play a critical role in influencing real inflation rates, as they impact wage negotiations and consumer spending behaviors.

The ECB’s official forecast projects inflation at 2.1% in 2025 and 1.9% in 2026. However, the divergence between public expectations and official estimates highlights ongoing concerns over price stability and economic growth.

Key Takeaways:

Energy prices decreased by 2.7% over the last year despite a slight monthly increase.

Ireland’s inflation rose by 1.5% year-on-year but dropped 0.9% since December.

Consumers expect inflation to stay elevated, with a 2.8% projection for the next 12 months.

The ECB faces challenges in meeting its 2% inflation target amid shifting economic conditions.

Stay tuned for further updates as Eurostat releases new inflation data for the euro zone on February 3rd, 2025.