Dáil Éireann Debate, Tuesday - 15 June 2021
396. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which inflationary tendencies have been detected in the economy; if specific action is required in response to same; and if he will make a statement on the matter. [32077/21]
View answer413. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which his Department has identified potential inflationary tendencies likely to impact on the economy in the next 12 months; and if he will make a statement on the matter. [32095/21]
View answerI propose to take Questions Nos. 396 and 413 together.
Following the outbreak of the Covid-19 pandemic, the fall in aggregate demand exceeded the fall in aggregate supply such that the net impact on prices was deflationary. For 2020 as a whole, the headline Harmonised Index of Consumer Prices (HICP) declined by -0.5 per cent. Core inflation, which excludes the volatile components of energy and unprocessed food, fell by -0.1 per cent in 2020.
While inflation remained relatively subdued in the first quarter of 2021, both core and headline HICP have since picked up, due to a number of temporary and one off factors including the reweighting of the HICP basket, a reversal of the temporary VAT cut and the recovery in oil prices.
In May, headline HICP increased by 1.9 per cent on an annual basis – the highest annual rate since October 2012. Core inflation also increased sharply, up 1.2 per cent on an annual basis. The increase in the headline rate of inflation in May was driven largely by energy inflation, which grew by almost 12 ½ per cent on an annual basis due to base effects from the collapse in oil prices last spring.
The uptick in inflation since the beginning of this year is broadly in line with international price developments. In May, headline HICP in the euro area increased by 2 per cent on an annual basis, while core inflation increased by 0.9 per cent. More generally, in the US and other advanced economies, consumer prices have risen recently partly due to temporary factors including; oil prices, increased global shipping costs and semi-conductor prices. Additionally, consumer price inflation in many economies has been boosted by increasing demand as economies open up, very accommodative monetary policies and extraordinary fiscal supports.
Looking ahead, inflation in Ireland is expected to continue to pick up over the course of this year due to these temporary and one-off factors but also as demand recovers in line with the easing of restrictions and re-opening of the economy. Whether or not this recent increase in inflation proves to be temporary or more sustained is something my Department is closely monitoring.
