Dáil Éireann Debate, Thursday - 16 June 2022
15. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects to be in a position to counter inflation in a way which best affects the economy and taxpayers; and if he will make a statement on the matter. [31271/22]
View answer25. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he put in place anti-inflationary measures in a way which safeguards the economy and is in the interest of the Irish taxpayer; and if he will make a statement on the matter. [31272/22]
View answerI propose to take Questions Nos. 15 and 25 together.
Inflation picked up sharply over the course of the last year and in May stood at 8.3 per cent, a multi-decade high. Almost every advanced country in the world is in the same position, with euro area inflation reaching a record 8.1 per cent in May.
The key driver behind the elevated level of inflation at present is the sharp rise in wholesale energy prices since the onset of the war in Ukraine. Looking ahead, increases in wholesale energy prices will continue to feed into higher energy inflation over the coming months. Pass-through price effects are expected in other sectors, such as food (via fertilisers and fuel costs) and consumer goods (via higher energy inputs). Indeed, the recent rise in core inflation suggests that inflationary pressures are becoming increasingly broad-based.
The Government is acutely aware of the cost pressures currently facing households and businesses and has responded to help alleviate some of this burden. On a cumulative basis, the Government has announced €2.4 billion in cost of living measures since last October. These measures include changes in tax and social welfare, the provision of an energy credit for households, a temporary reduction in the rate of VAT on the supply of gas and electricity and a reduction in the excise rate for petrol, diesel and marked gas oil.
Whilst the Government will continue to work to minimise the fall-out on those who are least-equipped to respond, resources are limited and we cannot cushion all households and businesses from the entire impact of the current shock. Furthermore, in calibrating how we respond to the current challenges, it is important that we strike the right balance and ensure that policy doesn’t inadvertently add further inflationary pressures into the system.
Finally, it is worth pointing out that monetary policy is the first line of defence against inflation. In this context, the European Central Bank has indicated a tightening of policy in the coming months. By slowing demand in the economy, this should help bring demand and supply back into balance, with positive implications for inflation.
