Dáil Éireann Debate, Tuesday - 9 November 2021
128. Deputy Aindrias Moynihan asked the Minister for Finance his views on inflation and the rising costs of living currently challenging persons; the measures being considered to address this issue; and if he will make a statement on the matter. [54358/21]
View answerWhile Covid-19 had a deflationary impact both in Ireland and internationally last year, inflation has picked up since the beginning of this year. The annual rate of HICP inflation is expected to reach 5.1 per cent in October – the highest rate since 2003. The emergence of inflationary pressures is not unique to Ireland however, with euro area inflation expected to reach 4.1 per cent in October.
The recent rise in inflation is partly explained by temporary factors, which are expected to fade over time, including ‘base effects’ associated with the ‘normalisation’ of oil prices following their collapse last spring and the imbalance between supply and demand that emerged following re-opening. This has been compounded by global supply chain disruptions, including transport bottlenecks, input shortages (e.g. semi-conductors) and labour supply shortages in some sectors. More recently, increases in wholesale energy prices have put additional upward pressure on prices, with energy inflation of 18½ per cent recorded in September.
Looking ahead, the most likely scenario is that inflation will moderate over time as temporary factors fade, demand stabilises and supply pressures ease. The Department is forecasting inflation of 2¼ per cent this year and next. However, the recent spike in wholesale energy prices means that there could already be some upside to these projections. Indeed, a scenario analysis outlining the macroeconomic implications of higher than expected inflation is set out in the Economic and Fiscal Outlook published with the Budget.
Budget 2022 contained a range of measures to protect households from the rising cost of living, including a personal income tax package worth €520m and a social welfare package of over €550m. The fuel allowance was increased by €5 per week to compensate lower income households for the additional energy costs they are likely to incur due to an increase in the carbon tax. There were also increases in the allocation of Early Learning Care and School-Age Childcare to ensure childcare prices do not rise.
Additionally, the Government is pursuing a broadly neutral budgetary policy in order to contain domestic inflationary pressures. It is crucial that we do not have an inflation ‘chain reaction’ which would damage our international cost competitiveness.
