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Finance | Controlling the cost of living without contributing to inflation

To ask the Minister for Finance the extent to which he can continue to take measures to control the cost of living without contributing to inflation; and if he will make a statement on the matter.

– Bernard J. Durkan T.D.


For WRITTEN answer on Tuesday, 7 March, 2023.

To ask the Minister for Finance the steps that might be taken to alleviate price increases with consequent inflation affecting consumers throughout the country at large; and if he will make a statement on the matter.

– Bernard J. Durkan T.D.


For WRITTEN answer on Tuesday, 7 March, 2023.

REPLY


Consumer price (HICP) inflation picked up sharply over the past year, with average annual inflation of just over 8 per cent recorded in 2022. This compares with average inflation of around ½ per cent over the preceding decade. Almost every advanced economy is in the same position, with euro area inflation averaging around 8½ per cent last year.

The key driver of global inflationary pressures over the past year has been the sharp rise in energy, food and other commodity prices as a result of the war in Ukraine. Spillover effects from higher energy prices have also been felt in other sectors such as food (via higher fuel and fertiliser costs) and consumer goods (via higher energy inputs), with non-energy inflation also picking up last year.

On a positive note, the recent easing in wholesale energy markets suggests that inflation has now peaked and is on a downward trajectory. While inflation remained elevated at 8 per cent in February, this marks a decline of over 1½ percentage points from the peak of 9.6 per cent recorded last summer and the more recent 9.4 per cent recorded in October. At the time of Budget 2023, the Department forecast average annual inflation of just over 7 per cent for this year. However, due to the recent easing of wholesale energy prices, inflation this year is now expected to be lower than anticipated. Despite this easing, however, the price level consumers face will remain elevated. Furthermore, the pathway back to more ‘normal’ rates of inflation remains uncertain and may not be smooth.

The Government is acutely aware of the impact of rising prices on households and firms and has provided around €12 billion in cost of living supports to date. Budget 2023 included €4.1 billion in one-off cost of living measures which took effect from the final quarter of last year. This built upon a suite of policy interventions already in place prior to the Budget amounting to €3 billion. Additionally, the Government, last month, announced further supports amounting to around €1.3 billion, including both taxation and expenditure measures. The one-off or temporary nature of these measures balances the need to provide timely and targeted fiscal support to the most vulnerable households while, at the same time, avoiding adding to inflationary pressures.

However, it is essential that Government strikes the appropriate balance between assisting where we can today and ensuring we are prepared to meet the challenge that we know are ahead. Nevertheless, my Department will continue to monitor inflationary developments closely over the coming months and publish updated inflation forecasts as part of the Stability Programme Update in April.

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