Dr. Javier Papa:

Price inflation in Ireland continues to stay low, slightly below the euro area rate. The annual harmonised index of consumer prices, HICP, decreased by 0.7% in August, while it went up, only marginally, by 0.2% in the euro area. In the next slide we analyse the outturn in the HICP in detail.

We can see that in 2016, to date, headline inflation is averaging -0.2%, while core inflation which excludes volatile energy and unprocessed food prices is averaging 0.8%. Until August, non-energy industrial goods and energy prices made the largest negative contribution to headline inflation. However, the fall in the price of goods and energy continues to be partially offset by increases in service prices which, in turn, are boosted by rents and improving labour market conditions.

Looking ahead, in 2016 we forecast slightly negative HICP inflation of -0.1%, with, at 1.2%, modest acceleration into 2017. The drag from energy prices is expected to ease gradually from the fourth quarter of this year, with its contribution to turn positive in 2017. We also forecast a sustained positive contribution in service price inflation, again due to labour market conditions and rents. Overall, headline and core inflation are expected to converge in 2017.