Rising prices yet to factor in the war in Ukraine

Prices may also be impacted by rising Covid-19 cases, Central Bank Governor warns

Central Bank Governor Gabriel Makhlouf said price inflation could peak in the first half of this year but that significant uncertainty remains.

The soaring rise in fuel and energy prices being experienced by Irish consumers has yet to reflect the full implications of the war in Ukraine or the fresh wave of Covid-19 cases the Governor of the Central Bank of Ireland Gabriel Makhlouf has warned.

Speaking at the Oireachtas Finance Committee today the Governor said the 5.7% rise in prices recorded in February was the highest level of inflation since late 2000. He said inflation could peak in the first half of this year but that significant uncertainty remained.

"It should be noted that these increases in official consumer prices for energy and fuel are yet to reflect in full the developments of recent weeks and the implications of the conflict in Ukraine," Makhlouf said. " Nor do we understand yet the full impact of the latest increases in Covid-19 case numbers across the world."

"I hesitate to say when we're going to read peak inflation, I expect it to be in the first half of this year rather than the second half this year. But the judgement around that is clouded by enormous uncertainty, largely driven by the war in Ukraine."

The fears that prices in Ireland will rise further come as Spain confirmed a 10% increase in prices for March, the most in nearly four decades while inflation also topped expectations in Germany. 

"Inflation is going to come down," Mkhouf told the committee. "I think it's going to start coming down in the second half of this year, but it's going to remain much higher than the forecasts that we made back in December."

However, Mr Makhlouf remained positive about the future of the Irish economy. "While there is a lot of uncertainty around the war in Ukraine, the path of the pandemic, and the persistence of inflation, the outlook for the Irish economy remains broadly positive, notwithstanding the obvious headwinds."

Prior to today's meeting, the Central Bank published updated figures on mortgages which show the number of residential accounts in arrears fell by 14% in the final quarter of 2021. At the end of December, some 4.5% of all residential mortgage accounts were in arrears over 90 days, the lowest level since 2010.

However, at yesterday's committee hearing Gerry Cross, the Central Bank's Director of Financial Regulation, said the reduction in the level of distressed debt was not falling as quickly as they wanted.

"About 47,000 principal dwelling households are still in mortgage arrears, of which 34,000 have missed at least three payments and are 90 days or more past due," Cross said. "This is a source of deep stress for the families and individuals concerned."

"As well as dealing with existing arrears, we have been clear with lenders on the need to be vigilant to identify and deal with new arrears cases. We expect lenders to have in place a range of restructuring options capable of delivering sustainable solutions."