Price increases and hairdresser rivalry

Thursday, January, 2011

The publication earlier today of the CSO’s detailed price data show, at a reasonably disaggregated level, where Irish prices are rising and falling and illustrate the open nature of the Irish economy. 

Like the UK, higher international energy costs and commodity prices are driving inflation in Ireland but prices are rising much more rapidly in the UK (the headline annual inflation rate there is 3.7% compared with 1.3% here).  This difference indicates the extent to which demand is generally depressed in the Irish economy.

Prices in Ireland are rising quickest in housing utilities (9.9% annually, 0.6% monthly), transport (3.7% annually, 1.8% monthly) and miscellaneous goods and services (3.4% annually, 1.2% monthly).

Underpinning the higher housing bills (e.g. home heating oil, electricity and gas) and transport costs (e.g. petrol and diesel) are the higher oil prices internationally.  Within miscellaneous goods and services, the highest price increases relate to hairdressing, reflecting the higher energy bills being passed on to consumers. 

Hairdressing provides an example of a competitive market (at least on the face of it), with plenty of choice and low barriers to entry.  It appears that the competitiveness of the market is preventing less than 100% pass-through of costs by salons.  However, the proposed water charges could see hairdressing costs go up further and the regular visit to the salon is not an insignificant component of weekly budgets for many households.

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