Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

Over the past year, Ireland, along with almost all other advanced economies, has had to grapple with the effect of surging global energy prices triggered by the Russian invasion of Ukraine. These price pressures quickly spread to non-energy goods and services, creating broad based inflationary pressure. In practical terms, it has squeezed real incomes of households and has also come at a time when many have had to contend with tightening financing conditions. Since last summer, the ECB has increased interest rates on eight consecutive occasions. Although necessary to avoid inflationary pressures becoming entrenched, this has raised debt servicing costs for many households.

Despite these formidable challenges, the timely and targeted nature of Government supports has helped ensure the resilience of the domestic economy. Nowhere is this resilience more clearly evident than in the labour market, where there are now more people employed than ever before and the unemployment rate has fallen to just 3.8% in May, a record low. The strength of the labour market has supported broad-based growth in the domestic economy at the start of this year, with modified domestic demand increasing by 2.7% in the first quarter.

I am also pleased to highlight that inflation has passed its peak and is now on a downward trajectory. Having peaked at 9.6% this time last year, the latest data show that inflation had fallen to 5.4% in May, a decline of more that four percentage points. Looking ahead, my Department expects the inflation rate to fall further over the remainder of the year. This, in turn, should support a return to growth in real incomes. Of course, significant challenges remain on the horizon, including increasingly binding capacity constraints with the economy at, or possibly beyond, full employment. Core inflation remains persistently high, while the risk of a wage-price spiral should not be discounted. My Department is cognisant of these risks and will continue to monitor all of these developments closely.

See this speech in context