Finance | Irish economic confidence against rising inflation

To ask the Minister for Finance the extent to which he remains confident that the Irish economy, including mortgage borrowers, are protected insofar as is possible from inflationary costs generated from within or outside the country; and if he will make a statement on the matter.

REPLY

Consumer price (HICP) inflation picked up sharply over the course of the last year and in October stood at 9.6 per cent. Almost every advanced country in the world is in the same position, with euro area inflation reaching a record 10.7 per cent in October.
The key driver of global inflationary pressures at present is the sharp rise in energy, food and other commodity prices as a result of the war in Ukraine. Spillover effects from higher energy prices are also being felt in other sectors, such as food (via fertilisers and fuel costs) and consumer goods and services (via higher energy inputs). As a result, non-energy inflation has picked up sharply in recent months, indicating broad based inflationary pressures.

In response to rising inflation, central banks across advanced economies have begun tightening monetary policy. Indeed, the ECB has raised interest rates by a cumulative 2 percentage points so far this year. As Minister for Finance, monetary policy is not a part of my remit and it is not my place to comment or speculate on the setting of Eurozone interest rates. However, interest rates changes do have an impact on the economy as an increase in interest rates will increase the cost of borrowing, making it more costly for households and businesses to borrow money and invest.

Against this backdrop, the primary focus of Government, in Budget 2023, has been to do as much as possible to provide relief to households and firms without making the inflationary situation worse. Budget 2023 includes an overall package of €6.9 billion for next year, including adjustments to income tax bands and increases in social welfare and pension rates. Complementing this is a set of one-off measures amounting to €4.1 billion, which take effect from the final quarter of this year. The one-off package includes three €200 electricity credits to each household, an additional social welfare payment, a double payment of child benefit, the extension of the reduction in excise duties and the VAT rate on gas and electricity to end-February as well as the Temporary Business Energy Support Scheme.

This approach balances the need to provide necessary fiscal support to households and firms while at the same time, avoiding a situation in which the Government’s fiscal response becomes part of the inflation problem.