Inflation in Ireland has been subdued for several years. For example, on a Harmonised Index of Consumer Prices (HICP) basis, 2017 was the fifth consecutive year of inflation below 1 per cent. This phenomenon is not restricted to Ireland. Low inflation has been a feature of advanced economies in recent years. However, in 2017, inflation on a HICP basis across the euro area accelerated to 1.5 per cent, from 0.2 per cent in 2016.
This acceleration did not occur in Ireland, with inflation on a HICP basis averaging just 0.3 per cent in 2017. The divergence between inflation in the euro area and Ireland can in part be attributed to the impact of euro-sterling appreciation on consumer prices in Ireland. In turn this reflects the importance of the UK as a source of imports of consumer products.
While overall inflation has been subdued, services inflation has been robust, averaging 2.5 per cent last year. One important factor driving the increase in services inflation is strong growth in rent prices. Rent inflation averaged 6.7 per cent last year, a moderation from the 8.7 per cent increase in 2016. The pace of increase in rent prices, which in part reflects the ongoing shortage of housing, is of concern.
The Government’s strategy for tackling housing issues is set out in Rebuilding Ireland – An Action Plan for Housing and Homelessness. The overarching objective of the plan is to increase overall housing supply to a more sustainable level of around 35,000 homes per year by 2020. The Government has committed to spending over €6 billion out to 2021 to implement the plan.