Finance | Passing on reductions in inflation to consumers
To ask the Minister for Finance when it is likely that measures to reduce inflation will be passed on to the consumers; 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. 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. That is why Budget 2023 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 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.
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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