Professor Karl Whelan:

I would describe as external almost all of what we have seen in Ireland until now. It is external either in the sense of coming from abroad, as in the case of higher energy prices which are a global issue, or higher goods prices, which applies to almost all goods we export, or else it is external in the sense of being beyond the control of the Government, such as some of what we are seeing with the pandemic. Part of this base effect was, for instance, that one could buy an airline ticket in August, September or October last year, but people did not feel it was safe to travel and the right conditions were not in place. Airlines were flying half empty and practically giving tickets away. Now there are more people flying so tickets are more expensive. It is the same with restaurants and hotels. That is a contributing factor. It is completely outside the control of governments in that they have to do what they do with restrictions and do what is best for public health. The inflation we are seeing is largely a result of external developments and the pandemic recovery.

Across the world, there are places which have generated their own internally and policy driven inflation. The most recent number hot off the presses today is that the US consumer price index, CPI, for October is over 6.3% year on year. In addition to the global factors we are talking about, that is clearly driven by a very aggressive fiscal response, which includes multiple rounds of stimulus cheques mailed to people that are burning a hole in their pockets. We have not done anything like that here.

The capital spending programme is something I would flag for the next couple of years. I am not referring to any individual item but if we add it all up, we seen that the Government wants to make public transport infrastructure investment, build roads and make lots of investment in public housing and climate-related energy areas. When one starts adding it up, one wonders where all the builders for this will come from. Once the economy starts to recover, we have to think about whether it could overheat. We can see domestic overheating. I refer to the first figure I provided in my briefing and the wording I used. I indicated inflation was higher than we have seen since prior to 2008. In Ireland, in the couple of years prior to 2008, inflation was running at 5%. It was a bit funny to go back and look at it because I do not remember people talking about it. The times were so good and everybody's wage increases were so far ahead of inflation that I do not remember much talk about it. That was internally driven inflation. It was driven by an overheated economy and, in particular, an overheated construction sector. We can do it but it is not what is happening now.