Dáil Éireann Debate, Thursday - 26 November 2020
223. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which inflationary tendencies have been identified in the economy that might ultimately pose a threat, such as inflation in house prices; and if he will make a statement on the matter. [39473/20]
View answerTo date, the net impact of the Covid-19 shock has been deflationary. On an annual basis, the Harmonised Index of Consumer Prices (HICP) has been negative since April. This phenomenon is not unique to Ireland, with many advanced economies, including the euro area, experiencing weaker inflation as a result of the pandemic.
In October, headline HICP declined by -1.5 per cent on an annual basis - the lowest rate since 2010. This implies a headline inflation rate of -0.4 per cent for the year to date. Core inflation, which excludes the volatile components of energy and unprocessed food, was flat over the first ten months of the year. While low goods prices and declining air fares continue to act as a drag on inflation, declining rent prices, a key driver of overall services inflation, have put further downward pressure on both the headline and core index in recent months. Subdued price pressures are also evident in the housing market. The residential property price index declined for the third month in a row in September, with prices falling by 0.8 per cent on an annual basis.
These developments are broadly in line with the outlook for inflation set out in the Budget 2021 forecasts published in October. The Department is currently forecasting headline HICP of -0.3 per cent this year and 0.4 per cent in 2021, with core inflation of 0.1 and 0.2 per cent in prospect this year and next. The headline index is expected to grow in line with the assumed recovery in oil prices next year. Services prices are also forecast to grow throughout 2021, in line with an improvement in labour market developments, putting upward pressure on both headline and core inflation.
