Dr. Mark Cassidy:

I will try to address those issues in turn. I fully agree with the Deputy's analysis that we saw evidence of significantly higher inflation during the second half of 2021, which related more so to the legacy of Covid and other global factors affecting energy markets. Now we have a second wave exacerbating matters. The official data that I quoted relates to February 2022 and, therefore, we will see a further uptick in inflation, particularly in the context of energy in light of the developments that we already know have happened. A point I would note about energy inflation is the extreme volatility of wholesale gas prices in particular but also oil prices. That can create additional problems and feed through to retail prices.

A third general point I wish to raise before I get into the answers more specifically, what we have not fully seen yet is a pass-through to food prices. We have seen in recent months a modest uptick in overall food prices and a bit more of an uptick in elements of food prices relating to cereals, grains and oils. There has been quite a sharp rate of increase in the past month or two. There is no doubt that this has not yet fully passed through. We will also see further pressures on food prices in the coming months.

The Deputy will understand that we are still working on these forecasts, but our current estimates suggest, in terms of the annual average, that it will be up between 1% and 2% over the year as a whole. Whereas we were forecasting an average rate of 4.5% in our previous bulletin, this will likely be in the order of 5.5% to 6% on average. We will have a more definite figure in two weeks' time. As to the profile during the year, we expect to see the rate, which is currently 5.7%, increase and peak around the summer months. Again, I apologise for presenting a range, but our estimates suggest that the inflation rate will peak in the summer in the range of 7.5% to 9%. There is an expectation of a gradual decline during the second half of the year. Importantly, we also expect the rate to remain higher than we previously expected throughout 2023. Short-term effects in these markets will pass through on a more delayed basis to broader elements of the consumer price basket - this will lead on to the second part of the Deputy's question relating to second-round effects - and, therefore, we expect inflation to be somewhat higher during 2023.

In terms of the differential inflation rates, while the average inflation rate is 5.7%, we produced estimates of differential inflation rates for different parts of society that range from 5.1% to the highest of approximately 6.2%. People who are experiencing the higher rates include lower income groups, older households and rural households. If the rate averages at 5.5% to 6%, one can expect the average rate would be about 0.5% higher for the more affected groups, which in some respects may not seem like a lot. If one looks at the corresponding incomes, however, it is a lot. We believe the bill for the average household could be €1,200 to €1,300 higher than it would have been two years ago, which may be the best comparison. Of course, for lower income households, that is a significant amount. Estimates indicate that bills for food may be €500 to €600 higher if food price increases materialise as we expect.

When economists talk about second-round effects they often relate to the dynamic between prices and wages; high inflation leads to higher wages which in turn passes through to higher prices. We are not yet seeing evidence of that. We are not yet seeing any broad-based evidence of higher wages across the economy. Where we expect this to show up is in gas and oil prices. They are a key component of production and output across the economy. That leads to higher production cost for most goods and services. For some sectors in particular, that will pass through to higher prices for broader consumer goods and services.

I also mentioned developments in food prices. Whether one considers that a second-round effect depends on what way one looks at it. An important reason why food costs will increase is because of higher gas prices affecting fertiliser which affect food. Therefore, to some extent it is also a higher second-round effect.