Central Bank governor warns Govt not to go overboard with cost of living measures
Central Bank governor Gabriel Makhlouf also said the Ukraine crisis probably won’t keep the ECB from agreeing on a faster wind-down of asset purchases at its next policy meeting.
Government moves to ease increases in the cost of living must be “targeted” because of their potential impact on inflation, Central Bank governor Gabriel Makhlouf has warned.
“Those sort of support packages have their place, but they need to be targeted because the distributional impact of inflation is not neutral,” Mr Makhlouf said.
“I’d be concerned if we went overboard, if governments decided to make very big investments in supporting energy inflation and costs of living, because it could backfire,” he said.
Earlier this month, the Government said it would increase fuel welfare payments and double a planned energy credit as part of a €505m subsidy package to help families hit by rising prices. Still, measures such as those could only serve to worsen inflation if not managed properly, Mr Makhlouf said.
His comments follow advocates for low-income households urging the Government to revisit the €505m package on the back of a jump in fuel costs prompted by the Ukraine crisis.
The package includes a rise to €200 in a household energy credit, a lump-sum payment of €125 for a fuel-allowance scheme, a 20% cut in transport fares and a cut in caps for school transport fees.
The Free Legal Advice Centres (FLAC) has called for rolling reviews of household bills and the establishment of a Nphet-style agency to monitor price increases. FLAC’s senior policy adviser Paul Joyce said it would be “a pretty sorry situation” if the €505m package is supposed to remain unchanged until October’s budget.
St Vincent de Paul said it is more urgent than ever for resources to target low-income households.
The Central Bank, itself, said this week that rural and low-income households are bearing the brunt of the cost of living increases. Lower-income households are spending more on energy and food and less on goods and services.
Mr Makhlouf’s comments echo those of German Finance Minister Christian Lindner earlier this month who expressed scepticism about “temporary VAT cuts” because of their potential to spur inflation.
“Every country’s response to energy prices will depend on its own circumstances and the way it affects inflation,” Mr Makhlouf said.
Meanwhile, Mr Makhlouf also said the Ukraine crisis probably won’t keep the ECB from agreeing on a faster wind-down of asset purchases at its next policy meeting. However, he said the prospects for a eurozone interest rate hike are less clear.
Earlier this week, Bank of England governor Andrew Bailey warned that an escalation in the Ukraine crisis would push inflation higher.
