Jackie Cahill
Question:130. Deputy Jackie Cahill asked the Minister for Finance his Department’s current projection for inflation in 2023; and if he will make a statement on the matter. [30042/23]
View answerThursday, 22 June 2023
Questions (130)
Written answers
The Department of Finance published updated macroeconomic forecasts as part of SPU 2023 on 18th April which set out projections for inflation.
Having peaked at 9.6 per cent last summer, HICP inflation stood at 5.4 per cent in May – a decline of over 4 percentage points. This decline has been primarily driven by the significant easing in energy markets. Having peaked at around £4 per therm last August wholesale energy prices have begun to return to more normal levels and now stand at around £0.75 per therm. Assuming that there is no further disruption to energy supplies, headline inflation is expected to continue to ease over the course of this year. At the time of the SPU 2023, my Department forecast inflation to average 4.9 per cent this year.
‘Core’ HICP inflation (excluding energy and unprocessed food) has proven to be more persistent than headline inflation and is expected to decelerate more slowly as a result. The persistence of core inflation may, in part, reflect ongoing capacity constraints in the economy, particularly within the labour and housing markets, as well as lagged pass-through effects of the impact of the energy price spikes working their way through other sectors.
Due to continued uncertainty, there remain significant risks to the outlook for inflation. The balance of risks is titled to the upside, particularly with respect to core inflation, which is likely prove ‘stickier’ and more durable than in the SPU 2023 baseline assessment. With the economy operating at full employment, there is a possibility for a wage-price spiral to emerge due to capacity constraints in the labour market, leading to core inflation becoming more persistent.
Furthermore, the outlook for energy prices remains highly uncertain due to continued volatility in wholesale energy markets, and wholesale prices could move higher-than-assumed. Any further challenges to supply could see energy prices spike once again.
Reflecting the risk of higher energy prices or more persistent core inflation, a plausible upside inflation scenario was published in the SPU 2023, where price pressures remain higher for longer. Under this scenario headline inflation would average 5.8 this year, compared to 4.9 per cent under the baseline scenario.
Question No. 131 answered with Question No. 129.