Oireachtas Joint and Select Committees

Wednesday, 10 November 2021

Committee on Budgetary Oversight

Inflation: Discussion

Professor Karl Whelan:

I think Dr. Kavanagh is correct that, ultimately, firms are facing a trade-off in the future that they may not have thought about before. Having lots of the supply chain in China and far-flung parts is cheap but not necessarily secure. There is a trade-off there. Different businesses will settle on different ways of coping with that but it seems likely some businesses will decide to source parts in Ireland or Europe rather than China because the security of their supply to those they supply and sell to is foremost for them. That means it will not be as cheap and those costs will ultimately get passed on. There is a lot of evidence that supply chains were about as stretched as we could let them be in terms of operating safely. That is another element that is likely to show up in increased costs and possibly higher inflation than we saw in the past. One of the many stories about low inflation over the past decade was sourcing things really cheaply in China. To the extent that firms start to think twice about doing that, that force starts to unwind itself.