Mr. Brendan O'Connor:

If we look at those same data, it is definitely across the board, even in sectors that were more affected by the pandemic than others, and those within work were still experiencing wage growth. However, yes, it was absolutely tilted towards those sectors where profits and revenues were growing, particularly the multinational sector. That would make sense. If a firm is making an awful lot of profits, it is reasonable that there is a return to the people working in it.

To get to the core of the Deputy’s question about wage-price spirals, that is the economic question of the age, namely, what do we do in an economy where there is comparatively high inflation? All economies are quite different at the moment and the components of inflation are very different. If we look at US data, there is a very particular story over there. Core inflation is through the roof and is up at about 6% or 6.25%. That is why we have seen the Federal Reserve moving and if it really wants to control it, there is probably a considerable degree of work, if we consider what market expectations are for interest rates at the very end of the year. By the way, the US labour market is super-tight and unemployment rates are at 3.5% or something like that. In the UK, it is kind of a similar story, which is one of pretty strong core inflation and super-low unemployment. In the euro area, there is a bit more slack in the labour market. That said, unemployment rates are at record lows and it is just that, historically, it has been a little higher. However, core inflation is certainly not biting to the same extent yet in the euro area, although it is definitely picking up and, in Ireland, is expected to be of the order of about 4% this year.

If we think about inflation as a whole, there are the energy products we import and the goods we import and, basically, pretty much all goods are imported into Ireland, certainly consumer goods, although some food is produced and consumed domestically. Then, there are services, which encompass many different things and, within services, wages account for perhaps two thirds to three quarters of costs. Therefore, if, as a rule, we are trying to ensure that everybody should be compensated for the full price increase, that clearly goes straight into the costs of firms and, ultimately, comes out the other end. To slightly simplify this, we can think of a market where things are quite competitive, say, fruit or if we want to buy a carrot in a market. If some cost upstream goes into it, whether it is a fertiliser price increase or something else, the price that the customer pays increases quite quickly. That is the wage-price spiral.

Where does that actually lead us? If I am to pre-empt the Deputy’s next question of what should happen with wages, it is a very difficult one to give an answer to. Everybody tries to compare the situation today to the 1970s but it was a very different situation. We have independent monetary institutions now, central banks with inflation targets did not really exist to the same extent back then and we had economies that were way more energy-intensive. At the same time, we had a lot of economies where wages were simply indexed, so it completely did chase inflation. Basically, we had increased wages, which increased costs and increased prices, which again increased wages, and that was the wage-price spiral. That led to super-high inflation, really low output growth, in some cases recessions and very high unemployment.

I do not have an answer for the Deputy as to what should happen with wages. I would probably say that in normal times, and we are not in normal times, we would expect wages to increase at least with productivity and some compensation for price increases, but I am not going to say that increasing it for all of us would not have an impact on inflation in a spiralling sense.