Annual inflation in Ireland soared to 6.9 per cent in March, according to Eurostat, the statistical office of the European Union. The EU inflation measure differs slightly from the CSO's consumer price index, but the two track each other very closely
By way of comparison, Eurostat’s estimate for Irish inflation was 5.7 per cent in February, and just 0.1 per cent in March 2021.
The rate is still below the EU average, which Eurostat estimated to be a record 7.5 per cent in March, up from 5.9 per cent in February.
Surging energy prices remain the dominant factor affecting prices, with the cost of energy jumping just under 45 per cent in the year to March. That compares with a rise of 32 per cent year-on-year in February.
The cost of food, alcohol and tobacco is also rising well above the 2 per cent rate targeted by the European Central Bank, up at an annual rate of 5 per cent in March, compared with 4.2 per cent in February).
Next in line are non-energy industrial goods (3.4 per cent in March, compared with 3.1 per cent in February) and services (2.7 per cent last month, compared with 2.5 per cent in February).
Targeted measures
Central Bank governor Gabriel Makhlouf said on Wednesday that policy measures to ease the impact of soaring inflation should be targeted and temporary, so that they do not contribute to the problem.
Mr Makhlouf highlighted that work his institution has carried out shows that households on lower incomes, older individuals, and those living in rural areas are being disproportionately affected by the recent spike in inflation, because they tend to spend more on energy and food, sectors where costs are soaring.
The Government’s response to date to ease the impact of inflation on households has to been broad-based through energy credits and fuel excise cuts, he said.
Inflation as measured by the CSO – the harmonised index of consumer prices – was running at 5.7 in February while it stood at 5.8 per cent across the euro zone. The European Central Bank’s inflation target is about 2 per cent.
While Mr Makhlouf said he could “definitely” see consumer prices moving higher, he predicted that inflation would peak in the first half of this year. However, he declined to give figures as the Central Bank is currently finalising its latest set of forecasts in advance of planned publication next week.
Speaking on Friday, the chief economist of the European Central Bank (ECB), Irishman Philip Lane, acknowledged that inflation is very high but said there were opposing forces at work and the euro zone central bank should take its time analysing the data.
Energy shock
“We have the energy shock, the prospects of second-round effects, pushing up inflation,” Mr Lane told CNBC “On the other hand, the weakening of sentiment, the fact that real incomes will suffer with the high energy prices, especially over a one- to two-year horizon, will have a negative pressure on the inflation outlook.”
He said earlier this week that euro zone inflation was increasingly likely to stabilise around its 2 per cent target but added that the ECB should be ready to change course if the outlook deteriorates due to Russia's war in Ukraine.
Current rates of inflation are driven by higher global energy prices and supply bottlenecks stemming from the Covid-19 pandemic and exacerbated by the war in Ukraine.
Raising interest rates are seen by economists as a less effective tool for tackling supply-driven inflation than demand-fuelled price increases. Still, Mr Makhlouf reiterated the European Central Bank line that it will take “whatever action is needed” to fulfil its mandate to pursue consumer price stability.
