Dr. Mark Cassidy:

I can confirm everything the Deputy said about distributional effects. We recently produced an analysis, based on December 2021 data, that confirms that rural communities are more heavily affected than urban communities because of the nature of the price increases we have seen. The effective inflation rate in rural communities can be up to 0.5% higher than the average throughout the wider country. It is possible it will get somewhat worse.

The analysis in December probably did not fully reflect what was coming down the line in terms of oil and gas prices, and fertiliser prices which will be a very important element of inflation this year. Deputy Canney is, therefore, absolutely correct.

The Deputy is also correct about fixed incomes or those parts of the economy that are not going to see the same increases in earnings as maybe other parts of the economy. Let us say the average rate of inflation this year is 6%. If average earnings across the economy are increasing by between 3% and 4%, that means the average household is having a decline in real incomes of around 2%. If somebody does not earn between 3% and 4% more and has the same income this year as last year, that is a much larger reduction in their purchasing power and real income during the year. It is absolutely correct to say that rural communities are harder hit and that people on a fixed income or those who earn lower income increases experience larger declines in real incomes.

In terms of policy, given how things have developed, more measures may well be warranted or necessary. That is a matter for Government, however, and it would be getting beyond our mandate for us to get into what specific policies may be introduced.

With regard to VAT, it is known that there are challenges with European fiscal rules. We have a derogation for electricity and gas where the current rate is lower than the rate for other products and it could not return to that lower rate. I am not an expert on European fiscal rules but it would be useful if any changes to those rules could be agreed at European level in order that one is operating within the framework. To go beyond would really be to get into the policy sphere, and it is more appropriate that elective representatives rather than us discuss and debate that.