Thursday, February 28, 2008

The Domestic Price of Exports

I came across this graph in the latest issue of the CSO's Wholesale Price Index. It struck me as quite shocking as it shows Irish manufacturers effectively using the Irish consumer to cross-subsidise their sales to overseas customers. How else do you explain a near 15% rise in output prices for home sales since 2000, alongside a near 20% reduction in export prices?

So far so bad, but it may be about to get a lot worse. With the euro hitting an all time high of $1.51 against the dollar yesterday, Irish and other eurozone exporters are going to be under more pressure to reduce their export prices.

But with consumer spending power weakening in Ireland as inflation and interest rates erode modest pay rises, there may be less room for Irish exporters to make up for reduced margins overseas through higher margins at home.

Things may be about to get even tougher for Irish exporters than they realise.

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