Housing crisis and European heatwaves may keep inflation high, warns advisory body
The National Competitiveness and Productivity Council (NCPC) has warned that recent wildfires in southern Europe, such as this one near Athens in Greece, could "potentially add upward pressure to food and energy costs" when combined with the heavy rainfall experienced in Ireland and the UK in recent months. Photo: Costas Baltas/Anadolu Agency
The Government has been warned that high inflation could sustain over the next year or so due to increased food prices, heatwaves and developments in the housing market.
It is understood the National Competitiveness and Productivity Council (NCPC) has warned that the short-term economic impact of recent environmental events, such as wildfires in southern Europe, remains unknown but could "potentially add upward pressure to food and energy costs" when combined with the heavy rainfall experienced in Ireland and the UK in recent months.
This would limit the scope for inflation to reduce over the coming year or so due to Ireland's reliance on southern Europe for a large number of food products, including fruit and vegetables. The council's bulletin is to be published on Thursday.
It’s understood the bulletin also outlines that developments in the housing market, such as the upward price pressures in the rental market and supply issues, also have the potential to sustain inflation over the short to medium-term.
Changes in mortgage interest repayments have also played some role in the increase in Ireland’s inflation levels over the past year, the bulletin states.
The NCPC reports to the Taoiseach and the Government through Enterprise Minister Simon Coveney on key competitiveness issues facing the Irish economy. The council also offers recommendations on policy actions required to enhance the State’s competitive position.
There are still measures that can be taken to address high costs for domestically produced goods and services, the NCPC has said. These include “the banking, legal and insurance sectors where the promotion of greater competition can serve to reduce prices for end-users”.
While current forecasts signal a continued easing of inflation in Ireland, several factors could come to sustain higher rates of consumer price inflation in the next 12 months or so.
This includes ‘heatflation’ — increased food prices and smaller harvests due to heatwaves and droughts across Europe, rising labour costs and the scheduled increases in the enterprise cost-base.
It comes as a Credit Union survey out on Thursday shows Irish consumer sentiment has slipped for the first time in five months.
The survey says a combination of factors are damaging consumer outlook, including recent ECB interest rate hikes, high-profile job losses, such as those at Accenture, and even the gloomy weather in recent weeks.
