Irish Prime Minister Brian Cowen wants to cut public wages. (Jeff J Mitchell/Getty Images)
With prices dropping on a year-on-year basis since January, some economists have warned of a prolonged downward spiral in an already deep recession, yet most see it as helpful to restore competitiveness in the former 'Celtic Tiger' economy.
"Many international clients have asked us if this deflation is pernicious," Davy Chief Economist Rossa White said. "We don't believe so."
Prime Minister Brian Cowen has argued that in a deflationary environment it would be justified to cut public wages to help stabilise the sky-high budget deficit, despite protests and a planned strike by workers against his plans.
"If prices had increased by that amount, there would be loud calls for compensatory pay increases," Cowen said after the latest CPI data. "Equally, the fact that prices are falling must be taken into account when assessing the potential impact of wage and welfare adjustments." The consumer price index (CPI) fell by 0.2 percent in October to stand 6.6 percent lower than a year earlier, compared with a 6.5 percent annualised fall in September and marking a new record fall since 1933, just as last month. The median forecast of 8 Dublin-based economists polled by Reuters had been for CPI to fall 0.1 percent, giving an annual negative rate of inflation of 6.5 percent.
"I certainly don't see an end to price deflation in 2010 but it's going to be at a steady pace and really what you're doing is eating into some pretty fat margins in the retail sector, there is still more to go there," Davy's White said.
The Harmonised Index of Consumer Prices (HICP), which is used for intra-EU comparisons, was down 0.2 percent on the month to give a year-on-year fall of 2.8 percent.
"We have (a forecast for) a return to positive inflation in 2011," said Deirdre Ryan, analyst at Goodbody Stockbrokers.
Irish Finance Minister Brian Lenihan is due to unveil fresh economic forecasts in a pre-budget statement at 1630 GMT.
