Simon Coveney (Cork South Central, Fine Gael) | Oireachtas source

We had some discussion of this issue yesterday in a committee. I am aware, of course, of views expressed by European agencies and organisations that corporate profits are a contributing factor to inflation. The European Central Bank, ECB, examined the degree to which inflation is being driven by increases in wages compared with profits. It established there has been a significant increase in corporate profits throughout 2022 across multiple sectors and that this contributed to more than half of European domestic price pressures in the last quarter of 2022. The ECB has predicted that, over the coming years, growth in profit margins and wages will moderate as a result of its efforts to lower inflation and that this will have a knock-on effect on product prices. It has stated it is closely monitoring any exploitation of the uncertainty created by high and volatile inflation and supply-demand mismatches.

Ultimately the setting of market prices is a commercial matter to be decided on by individual commercial entities. Due to varied pricing strategies, it may take some time for wholesale price changes to be reflected in retail prices. The increase in commodity prices, such as in oil, energy and grain, has resulted in increases in the domestic sale price of several core products such as milk, butter and bread because these feed into fuel and fertiliser costs. Domestic food prices are influenced by international pricing. We import and export food at international prices. Prices in Ireland for domestically produced food will be influenced by the price achieved for these in export markets. A recent study by Kantar is showing that the rate of food inflation in Ireland has dropped slightly for the first time in two years for the period from February to April. This compares with EUROSTAT figures for the eurozone area which show inflation rose slightly to 7% in April. The fact that Irish food inflation is less than the EU average suggests Irish supports for business as well as the level of competition in the market are starting to have an effect.

The ECB expects profits to grow more moderately as the mismatches between demand and supply are resolved and inflation eases, and particularly as demand is dampened through rising interest rates. I will come back with a more specific answer next time.

See this speech in context