Price hikes on the cards this winter as inflation reaches highest level in 14 years

High rents and fuel costs push price increase rate to 14-year high.

People are facing further price hikes this winter as sky-rocketing home heating and lighting bills, petrol and diesel, and rental costs drive inflation to its highest for more than 14 years.

New CSO figures for October, showing the rate of increase in consumer prices at 5.1%, have revived concerns that Ireland, which already has some of the highest price levels in Europe, faces further inflationary pressures as the economic recovery continues to surge.

Inflation would persist if wages rise faster than expected to compensate.

New EU forecasts suggest there will be no let-up in costs through the winter and early spring, and that Ireland will have among the highest inflation rates in Europe next year.

The European Commission projects that Irish inflation will average 3.1% in 2022, the fourth joint-highest of the 19 states that make up the eurozone, before slowing to 1.5% in 2023.

Across Europe, energy costs rose “at a tumultuous pace over the last month” and risk pushing prices for households and producers higher, the commission said.

For the eurozone, it said price inflation amid energy costs and global supply shortages will peak at 3.7% at the end of this year “and continue recording high prints in the first half of 2022”, before starting to ease for the rest of the year.

For Ireland, there is evidence of specific cost pressures as rents surged 7.5% in the past year, amid one of the worst house crises in Europe, experts said.

ESRI economics professor Kieran McQuinn said the rise in rental costs was contributing a significant part to Irish inflation.

Renters who are working from home and facing higher heating bills would be among the most affected groups this winter, Prof McQuinn said.

However, it was not surprising that Ireland is near the top of the European inflation league as domestic consumption is climbing out of the Covid slump at a very rapid pace, he said.

The ESRI believes that price pressures will be a temporary phenomenon and the outlook will brighten as energy prices and global shortages ease next year.

Prof McQuinn also urged the European Central Bank to hold the line against hiking interest rate in response to inflation because the recovery remains incomplete in many parts of the European economy, he said.

The CSO inflation figures, which show the highest inflation since April 2007, also point to evidence that the release of pent-up savings is spilling over into price hikes.

Transport and household energy costs rose by 15.4% and 10.8% respectively since October 2020.

Petrol prices surged by 22% and diesel was up 25%.

Gas prices jumped 23% and electricity soared by over 15%. Spending demand drove a jump of over 4% in restaurant and hotel prices, and communications costs grew by 5%.

Private landlord rents grew by almost 1% last month and surged 7.5% in the year. That means rents have increased by 22.5% since 2016.

Mortgage interest rates were up 0.5% in October and rose 3% year-on-year.

The Government has forecast that inflation will peak at around 4.5% in the final quarter of this year and fall back to below 2% next year.

However, it has warned that inflation could be higher on the back of prolonged high energy prices and supply chain upheaval.

However, the EU forecasts also had good news. They project the Irish economy will grow at the fastest rate this year in Europe, at 14.6%, in GDP terms, as the exports of multinationals and the big pharma firms, in particular, continue to climb. It sees GDP rising 5.1% in 2023.

On an alternative measure that more accurately reflects Irish domestic conditions, the Irish economy will expand 7.3% this year, helped by the unwinding of pent-up savings, and grow by 5.3% in 2022, it forecast.