Irish Examiner view: We've no reason to party like it's 2006

Despite Christine Lagarde's insouciance, the global economy looks like it is shaping up for rampant inflation

ECB president Christine Lagarde seemed to shrug off the threat of inflation — but indications from the domestic and global economies suggest otherwise. Picture: Michael Probst/AP

There was a certain insouciance, a nicely French description, about the interviews provided this week by Christine Lagarde, head of the European Central Bank.

Inflation in the eurozone will decrease gradually this year, she said, because pressures on energy prices and supply chain bottlenecks are likely to ease. There is no current need, she said, to be limbering up in the same way as the US Federal Reserve, to squeeze inflationary pressures out of the system.

There is a strong desire to share this confidence, sense of wellbeing and general bonhomie, a fiscal equivalent of “nothing to see here, just move along”. Nearly all Covid restrictions will end this morning and that, in itself, will release a great deal of suppressed demand into the economy. And will make us feel good.

As our business desk has reported, domestic consumer prices are already running at their highest for two decades. On the day that CSO figures showed that prices rose 5.5% in December, at their fastest pace since April 2001, Britain’s inflation at 5.4% and Canada’s of 4.8% both set 30-year records.

Germany, the bedrock of the European economy, this month posted consumer inflation of 5.3%, the highest since the summer of 1992. And that was carrying the costs of German reunification. The costs of Irish reunification, as that debate moves forward, is also likely to pose a number of conundrums for the European Central Bank, for commercial banks, and for Irish taxpayers. These will need to be fully identified for that discussion on the future to be meaningful.

Energy costs are vulnerable to the consequences of whatever happens between Ukraine, Russia, and Nato while crude oil has risen by 70% in 12 months. The price of domestic heating oil is up by more than 50% since last winter. The impact of minimum alcohol pricing and accelerating home rental costs have not yet had an impact. And wage inflation will also be a significant feature of the next 12 months as people struggle to keep up with prices.

In the United States, headline inflation has risen to 6.8% while house prices have risen by 23% year-on-year which students of history might like to note is more extreme than in the subprime mortgage crisis of 2008. 

In Ireland, in what is believed to be the most valuable sale to have ever taken place in the Irish apartment market, a couple have paid €6.5m for a penthouse at Lansdowne Place, Dublin 4.

There are many requests, and, increasingly, demands, for state expenditure after more than two years of frustration and lockdown. But many people do not remember what it was like when rampant inflation stalked the land. It would be better if they are not reminded and better, also, if the European Central Bank, to which the Irish economy is inextricably linked, did not sound quite so complacent about it.