High inflation is here to stay in Ireland, economists warn

Annual rate of inflation hit a 20-year high last month, with consumer prices up 5.3% year-on-year in November
High inflation is here to stay in Ireland, economists warn

The cost of living in Ireland is expected to remain high throughout next year.

Inflation is likely to remain high throughout 2022 and beyond – with food and fuel becoming increasingly less affordable – economists have warned.

The grim outlook follows latest CSO figures showing the annual rate of inflation hit a 20-year high last month, with consumer prices up 5.3% year-on-year in November. The latest monthly rise was driven by jumps in energy, transport and rental costs.

EY expects inflation to average 3.3% next year, but warned it could remain as high as 4.5% throughout 2022 if there is no relief in energy costs and wage pressures in the first half of the year.

Goodbody said the latest CSO inflation reading is probably close to peak, with “transitory features” – like energy prices and pre-Christmas clothing prices – likely to pass in time. However, it said more persistent elements, such as upward wage pressures, are likely to keep inflation elevated until 2024.

EY said inflation will continually remain above the low levels experienced in the last five years, with a long-term rate of 3% possible.

Davy expects inflation to average 3.8% next year, possibly easing to 2.4% by the end of 2022. But, a decline in saving habits should lead to a 7% boost in consumer spending, it said.

Asked about inflation this morning, Finance Minister Paschal Donohoe said he believed that "inflationary pressures" will "moderate and will improve as we go through next year."

"But it's the very reason why we've increased the amount of income that people pay the standard rate of income tax on to help deal with these challenges. 

"It's the reason why we've increased the living alone allowance, the fuel allowance, the qualified child payment to help those who are affected by this," Mr Donohoe told Newstalk Breakfast.

Transport costs

The CSO said transport costs jumped by over 16%, year-on-year in November, due to rising diesel and petrol costs. Housing, electricity, and fuel costs rose by 12%. The cost of living was also impacted by an 8.1% annual increase in private rental costs and a 3.2% rise in mortgage interest rates. There was a near 4% increase in restaurant and hotel costs.

The ESRI has previously pointed out that rising rental costs have made a significant contribution to Irish inflation.

A range of sentiment surveys over the past month have shown Irish consumer confidence to be fragile at best, with Covid and inflation fears weighing on minds and likely – according to some – to keep a hoped-for spending boost on ice for much of next year.

Retail sales drop

The CSO’s most recent retail sales figures showed a 1.5% monthly fall in October, which was the second in a row and the third fall in four months.

Duncan Graham, managing director of industry group Retail Excellence, has warned that there will be noticeably higher prices in shops from early next year, despite many retailers having managed to keep prices steady in the run-up to Christmas.

“It is likely that these inflationary pressures will lead to higher retail prices for consumers in the spring,” he said.

The EU recently warned of no let-up in costs through the winter and early spring, saying Ireland will have among the highest inflation rates in Europe next year. The European Commission expects Irish inflation to average 3.1% in 2022, which would be the joint-fourth highest in the eurozone, before slowing to 1.5% in 2023.

Social Justice Ireland warned that rising prices are pushing people on low incomes further into poverty. It said the failure to raise core social welfare rates by €10 a week in the budget will result in people falling further behind the rest of society.

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