Finance | Monitoring economic progress and curbing and reducing inflation for consumers
To ask the Minister for Finance the extent to which he and his Department continue to monitor economic progress with a view to ensuring that inflation continues to be curbed and that the reduction in inflation is passed on to the consumer by way of lower prices; and if he will make a statement on the matter.
Consumer price (HICP) inflation picked up sharply over the past year, with average annual inflation of just over 8 per cent recorded in 2022, compared with around ½ per cent over the past decade on average. Almost every advanced economy is in a similar position, with euro area inflation reaching an average of just under 8½ per cent last year. The primary driver of global inflationary pressures has been the war in Ukraine, which induced a sharp rise in energy, food, and other commodity prices. Spillover effects from higher energy prices have also been felt in other sectors such as food and consumer goods, with non-energy or ‘core’ inflation also picking up over the last year.
While inflation in Ireland remained elevated at 8 per cent in February, this marks a decline of around 1½ percentage points from 9½ per cent in October. The recent decline in inflation has been primarily driven by an easing in wholesale energy markets. These latest developments support the idea that inflation has now peaked and is on a downward trajectory.
Due to the recent easing of wholesale energy prices, inflation this year is now expected to be lower than anticipated at Budget time. However, as gas prices are not expected to return to their long run average levels in the medium term, the price level consumers face will remain elevated, and the rate of inflation is likely to remain well above the 2 per cent rate that is consistent with price stability for some time. Furthermore, due to continued energy supply concerns there remains significant uncertainty around the outlook for inflation.
The Government is aware of the impacts of rising prices on households and firms. Budget 2023 was a cost of living budget focused on mitigating inflationary pressures. Budget 2023 included a total package of €11 billion, of which €4.1 billion consisted of one-off cost of living measures which took effect from the final quarter of last year. This was on top of some €3 billion in costs of living measures introduced earlier in the year. Over recent weeks, the Government has announced further measures amounting to around €1.3 billion, including a range of taxation and expenditure measures. This approach balances the need to provide necessary fiscal support to households and firms while avoiding a situation in which the Government’s response becomes part of the inflation problem.
My Department will continue to closely monitor inflationary development over the coming months and will publish updated inflation forecasts as part of the Stability Programme Update in April.
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