Irish inflation has been subdued for a number of years. For example, on a Harmonised Index of Consumer Prices (HICP) basis, annual inflation has been below 1 per cent since 2013. This trend is unlikely to change this year with HICP inflation of 0.9 per cent on average for the first ten months of 2019. This phenomenon is not restricted to Ireland. In recent years, low inflation has been a feature across all advanced economies.
Irish inflation has been consistently below euro area inflation since 2008. 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 2.4 per cent on average for the first nine months of the year. A key component which explains part of the increase in services inflation is the strong growth in rent prices. Rent inflation averaged 6.4 per cent last year, a slight moderation from the 6.7 per cent increase in 2017. This decline in rent inflation has continued into 2019 with rent inflation of 5.5 per cent on average for the nine months of 2019. The high level of rent prices partially reflects the shortage of housing at present, a key concern of Government.
The Government’s strategy for tackling housing issues is set out in Rebuilding Ireland – An Action Plan for Housing and Homelessness. The primary objective of the plan is to increase overall housing supply to a more sustainable level of around 25,000 homes per year by 2020. The Government has committed to spending over €6 billion out to 2021 to implement the plan.