Sound of falling prices grows louder across radio airwaves

The radio chat shows fairly crackled last week with accounts of three high-profile Dublin restaurateurs going out of business or said to be trading on the brink. Turnover was down over 20 per cent and landlords, by some accounts, were stubbornly refusing to agree rent cuts for the eateries. One owner of a Dublin bistro chain complained that, despite the appearance of busy trade, that the average diner had cut back and was ordering less. She warned the doors may close at her central Dublin diner because the landlord - in this case a bank - was insisting on doubling the rent from, arguably, a fairly reasonable level of about €900 a week. She also complained about the level of the minimum wage she had by law to pay her staff. Listeners also heard a first-hand account of the financial difficulties faced by Dublin"s best-known nightclub owner, who could not pay his creditors. The plug was literally pulled on another of his businesses, a restaurant off a busy national road in south-west Dublin, when the ESB, to which he owed €14,000, came round and cut the power off. Small suppliers to restaurateurs, who may themselves be brought to the brink, phoned in to complain they were facing ruin from unpaid bills. They did not enjoy the same access to the airwaves as the more illustrious nightclub and restaurant chain-owners. The radio programmes probably did more for an understanding of the costs facing businesses as the recession here completes it first year. The stories illustrate the fragile nature of an economy struggling to get costs back into line as turnover tumbles. Talk has already surfaced of cutting or freezing the minimum wage and paring back or freezing unemployment benefits. How painful cuts could be introduced is, of course, never explained and whether another round of cuts would spark another cycle of downturn is never fully discussed. The restaurateur on the national airwaves was publicly negotiating with her landlord, which happened to be a bank. The big black holes in the lender"s books, supported by the taxpayer, need to be filled. It just goes to show there is no easy way out when prices fall and a bubble economy contracts. Deflation can bring considerable pain. The strains facing small businesses have clearly been shown in the rapid rise in jobless figures - unemployment has more than doubled since last summer. Falling prices are automatically presented as a good thing: some economists employed in safe jobs unwisely appear to relish the road back to competitiveness for the economy. It is as if, they suggest, that the pain endured by households losing their jobs is an unavoidable cure in itself. More strains are likely to show through, and calls by restaurateurs to review the minimum wage legislation is one such example. Reports published in recent days also suggest that prices are falling, though unevenly across the economy. First, the Central Statistics Office (CSO) reported detailed consumer price numbers that showed the shopping basket of goods and services it uses to measure inflation fell almost five per cent in the year to May. Sliding costs of mortgages, rents and much cheaper electricity and gas slashed household bills by almost a quarter in the year. However, mysteriously, other significant items in the basket fell at a slower rate. Attracting little comment, food prices (the second largest group of goods and services in the official consumer inflation basket) fell only 2.5 per cent in the year. With so many imports, the surge in the value of the euro and tumbling energy costs ought to have made food prices significantly cheaper by now. Other items in the inflation basket actually rose - rapidly rising motor and home insurance costs helped drive the so-called miscellaneous cluster of goods and services in the official shopping basket up by almost nine per cent. Our restaurateurs and hoteliers, who have filled the airwaves in recent times, ought also to be reminded that the official figures show that accommodation prices, after years of huge and steep increases, continued to rise in the year, while the cost of dining out was largely unchanged and certainly did not fall. In short, the sound of falling prices may be getting louder but the figures suggest that prices of many goods and services will take many years to fall at all.