Dáil Éireann Debate, Thursday - 22 June 2023
92. Deputy Aindrias Moynihan asked the Minister for Finance his views on the continuing high inflation and the eroding real wages in Ireland, with disposable incomes and living standards continuing to be under strain; and if he will make a statement on the matter. [30149/23]
View answerInflation has put huge pressure on household incomes over the last two years. People are struggling to make ends meet. Figures from the European Commission indicate that Ireland is now the most expensive country in the EU, with Irish consumers paying more for goods and services. Will the Minister outline the plan he has to deal with such stresses and strains on people across the country?
Over the past year, Ireland, along with almost all other advanced economies, has had to grapple with the effect of surging global energy prices triggered by the Russian invasion of Ukraine. These price pressures quickly spread to non-energy goods and services, creating broad based inflationary pressure. In practical terms, it has squeezed real incomes of households and has also come at a time when many have had to contend with tightening financing conditions. Since last summer, the ECB has increased interest rates on eight consecutive occasions. Although necessary to avoid inflationary pressures becoming entrenched, this has raised debt servicing costs for many households.
Despite these formidable challenges, the timely and targeted nature of Government supports has helped ensure the resilience of the domestic economy. Nowhere is this resilience more clearly evident than in the labour market, where there are now more people employed than ever before and the unemployment rate has fallen to just 3.8% in May, a record low. The strength of the labour market has supported broad-based growth in the domestic economy at the start of this year, with modified domestic demand increasing by 2.7% in the first quarter.
I am also pleased to highlight that inflation has passed its peak and is now on a downward trajectory. Having peaked at 9.6% this time last year, the latest data show that inflation had fallen to 5.4% in May, a decline of more that four percentage points. Looking ahead, my Department expects the inflation rate to fall further over the remainder of the year. This, in turn, should support a return to growth in real incomes. Of course, significant challenges remain on the horizon, including increasingly binding capacity constraints with the economy at, or possibly beyond, full employment. Core inflation remains persistently high, while the risk of a wage-price spiral should not be discounted. My Department is cognisant of these risks and will continue to monitor all of these developments closely.
First, I wish to acknowledge the measures that the Government took in dealing with the cost of living issue. Measures such as those to help with energy costs and the school bus ticket, among many others, were very welcome. They helped with the more intense pressure. Inflation has eased, as the Minister said.
It still remains high and the pressure is on people. Food prices, for example, in May were running 12.5% higher than they had been in May of last year. Mortgage interest rates have gone from 0.5% to 4% over the last year. Households have to find several hundred euro extra each month, which is very difficult. As the Minister says, real wages have been dropping by €76 over the last two years, according to a survey by the Unite trade union. This pressure on people’s income means that people will be looking either for wage increases or possibly the easing of tax burdens. I want to try to get an understanding of what direction the Minister is looking at in supporting them.
The truth is that it will be through a combination of measures. Incomes will rise next year. I believe that in the main incomes will rise ahead of the rate of inflation next year. In real terms, people will make gains relative to the cost of living next year. The last 12 months have been really difficult for many people. Even though there was a whole range of cost-of-living measures, costing approximately €12 billion, we acknowledge that the full impact of inflation was not offset by those measures for everyone. However, there will be an opportunity, as we move to a lower, more normal inflation environment over the next 12 months and beyond, for people to make real gains in disposable income.
There will be changes in taxation to put more money back into pockets. There will be a core welfare package to try to improve the incomes of people who are on fixed incomes. We will also continue to examine what more we can do in areas such as childcare, education and healthcare costs to reduce the overall burden that people are facing in their day-to-day lives. It will be a matter of a combination of measures. There will hopefully also be the agreement of a new public service pay deal over the next number of months. It will therefore be a combination of pay, reducing the burden of tax, reducing charges and increasing people’s incomes through the decisions taken by the State.
