In the summer of 2005, Eddie Hobbs opened the eyes of consumers around Ireland with his four-part TV show, Rip Off Republic. The show was a huge success, at least in terms of viewership, with the second show taking a 51% share of the audience that night, according to RTE. Given that prices increased by between 4% and 5% each year from 2006 to 2008, however, there were few who thought we’d actually broken the Rip-Off Republic.
Since then, though, Ireland has enjoyed/endured a combination of economic recession and falling prices. In January, consumer prices were at exactly the same level they were in late 2006 and only about 10% above 2004 price levels. Oddly, there are those that have reacted to falling prices in a recession as though it were a bad thing. For a small open economy in desparate need of a competitive devaluation, however, the significant fall in prices can only be a good thing. Hard-pressed consumers would also surely agree.
What do figures on retail sales in Ireland, released late last week, tell us about whether falling prices are a good thing or a bad thing for the Irish economy, both workers and consumers? The graph below shows a scatter of a dozen key retail sectors analysed by the CSO. The horizontal scale shows how the volume of sales in the sector in the first quarter of 2010 compared with the same figure in early 2007. You can see that some sectors have been hit by a fall in sales volumes of a quarter of more. These hard-hit sectors include two housing-related sectors, furniture/lighting and DIY (hardware, glass, paints), as well as book/newspaper shops and bars.
A number of sectors, however, have actually grown their sales in the last three years. They include department stores (just about), clothes, “non-specialised” stores and pharmacies. The key to their relative success? Not increasing prices, it seems. The vertical scale shows the change in the average price charged in each sector, as backed out from the value and volume series provided by the CSO. Whereas bars and newsagents around the country might be scratching their heads about their fall-off in business, both sectors are charging almost 5% more now than three years ago, on average. Meanwhile, the electrical goods sector – in theory much more exposed to collateral damage from the zombie property sector, as well looking like an obvious candidate for luxury cutbacks – has slashed prices by almost 30%. The result is that sales volumes are down only 2.5%. (Another factor to throw into the mix is that the sector is also likely to be used to falling prices, due to rapid technological advances.)
Two other quick notes:
- A sector not included in the stats is motor vehicles. Sales are down almost 50% from early 2007 levels (hence it would have changed the scale of the horizontal axis considerably), while prices are about 6% lower. (The silver lining for the sector is that car sales are up almost 20% on a year ago.)
- The pharmacy sector (which also includes sales of medical and cosmetic articles) has increased its sales volume by 3% in the last three years, cutting prices 8% along the way. Suggestions welcome on how much this outcome is driven by the Competition Authority’s deregulation of the industry, as opposed to, say, inelastic demand for necessities in life.
Joseph ,
I find it difficult to believe that prices really are coming down. It never ‘seems’ to be that way. Outside of retail (and I shop a lot less than I used to) things like my private medical insurance, car insurance and tax, tv licence, household/buildings insurance, etc. just seem to keep going up every year.
Ronan Lyons ,
Hi Joseph, thanks for the comment. It suggests a quick explanatory note: the sectors above are all retail, just different strands of retail. Insurance, health and education, etc., would not be covered. In fact, those three in particular are stubbornly inflationist at the moment, so you’re not losing your marbles, you’re spot on!
R
John Heavey ,
Ronan, what a lot of those sectors which are showing price increases have in common is govt involvement. While the CPI drops, health costs go up, education costs go up, taxes go up, bin charges go up. The DART increased its annual ticket price by over 10% in 2008 when the CPI was negative and this year cut the rush hour service by 40% – that’s Soviet era progress !
Cathal ,
Yes, as a struggling college student I have had the unwelcome experience of seeing book prices staying stubbornly high, especially textbooks and core reading materials. Thankfully the internet exists so I can get them for less elsewhere!
Seamus Coffey ,
@John
This perception of government inefficiency based on the CPI is a complete myth, but one that gets continued coverage.
The CPI does not measure “inefficiency” or “costs”. The CPI measures one thing – consumer prices.
In the cases of health and education you cite, it is true that these have inflation rates of well above average. However for the vast majority of health and education services provided by the State, the consumer is price insulated. There is no price, therefore these are not measured by the CPI.
This table shows what is in the Health sub-category of the CPI. The government sets very few prices for the goods covered: doctors’ fees, dentist fees, drugs and medicines, spectacles and hospital fees.
How much of the Education sub-category of the CPI is driven by “inefficiency” in the state sector? The answer and a little further commentary is here.
@All
From the original post the stand-out categories on the price side are undoubtedly Books, Petrol and Bars. I’m not really sure what’s happening in the Books category. The price increases in Petrol since Q1 2007 are driven by external factors and taxes (increases in excise duty and the introduction of the carbon tax). These are beyond the control of forecourt retailers who are generally price takers.
I think the Bars category is a much more interesting sub-group. Publicans appear to have worked to a very rigid pricing model that is now failing them, even with the help of excise reductions in the last budget.
In looking at prices in the Bar sector we see that all bar prices move together. The prices of all bar products; beer, spirits, wine and soft drinks, change (increase!) at the same time and seem to pay little attention to market forces.
I cannot imagine a supermarket that would have bread, dairy, meat and vegtable prices all changing together. The recent retail volume figures for bars would suggest that market forces are striking back!
Hugh ,
Ronan – a comment on New Car Registrations, to the end of April new registrations of 50,906 versus 36,816 for same period in ’09 represents a 38% increase year on year. Best estimate for Govt Scrappage Scheme Registrations is approx 6,500 so even excluding these New Passenger Registrations are still up approx 20% on 2009. Interestingly Commercial Registrations at 6,339 for same period this year prove an upward trend showing an increase of 27% over the previous year.
Both positive results underscoring an improvement in business and public sentiment.
Hugh Q (Source SIMI Statistics)
Emily ,
Yes, as a struggling college student I have had the unwelcome experience of seeing book prices staying stubbornly high, especially textbooks and core reading materials. Thankfully the internet exists so I can get them for less elsewhere!
housing ireland ,
Yes I thinh generaly you can get more for your money toady than a while back.