My Department continues to monitor the areas which are generating high headline inflation, in particular, it is monitoring developments in the Wholesale Price Index, Services Producer Price Index and Consumer Price Index published by the Central Statistics Office.
As a small, open trading economy Ireland is exposed to global inflationary pressures, including fluctuations on international markets for energy, commodities and food. Ireland is effectively a price taker on most international markets, and many of the drivers of Irish inflation are outside our control.
As a result of these inflationary pressures, input costs have gone up for many businesses. However, wholesale price inflation has levelled off across a number of areas in recent months, with wholesale electricity prices 26% lower in May 2023 than 12 months previously. While wholesale prices for construction products rose by 9.1%, overall, manufacturing producer prices (the price for goods produced by manufacturers for their consumers – including other businesses) 1.1% lower in May 2023 than May 2022.
Despite some volatility, Irish (consumer price) inflation has been trending down in recent months and reached 5.4% in May – in line with the broader Euro Area. In addition, consumer confidence reached a 14-month high in May (as measured by the Credit Union Consumer Sentiment Index), at 62.4.
Recent analysis from the Central Bank of Ireland suggests that profits have contributed significantly to ‘Gross Value-Added inflation’ – which is an alternative measure of inflation – across both 2021 and 2022, at 5 per cent per annum. This compares to an average contribution from profits to inflation of 1.7 per cent per annum from 2001 to 2020. I note that since the onset of the pandemic in 2020, the contribution of labour costs to this measure of inflation has been relatively flat, declining marginally from 1.3 per cent in 2020 to an estimated 0.8 per cent in 2022. The analysis from the Central Bank of Ireland would suggest substantial pass-through of increased input costs to consumers, in the form of higher prices.
Government has supported enterprise though a period of excessive energy cost inflation, in order to minimise the impact on firms and ultimately minimise the impact on consumers. While I acknowledge that the impact of energy price increases varies significantly be sector, and that firms in increasing their prices, may be acting in a precautionary way in order to offset future cost increase, I believe it is important that firms act sensibly in their pricing to reduce risks of a wage-price spiral which would have lasting effects on inflation.
