Thursday, 27 October 2016
Topical Issue Debate
Consumer Prices Data
Brexit and its potential implications here have elicited much debate in recent months. Very understandably much of the focus of attention has been on exports from Ireland to the UK. However, there is another side to the depreciation of sterling which is one of the immediate effects of Brexit. Every day I hear that there do not seem to be any change in prices of ordinary things that people buy here as a result of the depreciation of sterling, particularly from UK multiples.
With that in mind I did a price comparison in Liffey Valley last Saturday. I picked some toys, home ware, children's clothes and shoes, a bag, women's clothes, non-prescribed pharmacy items, magazines and also an electronic item. There are very significant differences between the prices in the UK and what they sell for in Ireland. It is not a case that people really have a choice to shop around.
Ironically magazines benefit from the 9% VAT rate because they fall under the hospitality area. That reduced rate applies to things other than restaurants and hotels in that category. In that area I found the most significant difference. With barcodes on certain items it may not be possible to see the price, but it may be possible to see the UK price. In one of my local shops I saw an item showing a price of 89 pence and it cost €2.80 at the checkout, which is an outrageous rip-off. It is part of the reason that people feel our money does not stretch any distance and it will lead to a big exodus to the North, ironically to go to exactly the same shops to buy exactly the same things as they would in the South. That is what will happen because people will not be taken for fools.
On 14 items, including a television which would be one of the big items one would travel to buy, there is €463 of a difference in price. When buying more expensive items, obviously the price difference is even higher. There is an irony about some of it. For example, something that is £3.99 in Boots in the UK is €5.99 here. Something that is €35 here is £25 there. They are nice, neat, round figures. I picked out very ordinary things across a range of goods. However, there appears a minimum 20% mark-up to start with.
With two outlets, Marks & Spencer and Next, I was able to do a comparison with the Netherlands, France and Germany. Marks & Spencer here was more expensive, but the Netherlands varied. In all cases the UK was cheaper. One would have to say there may be a reduction in price in the UK relative to other countries. The problem is that people cannot shop around because it is the same shops and all the shops are using this 20% differential.
I thank the Deputy for raising the issue and also for providing me with a copy of the table she produced. I commend her on taking the time to put it together. It is an interesting piece of work.
I should note at the outset that this is primarily a consumer issue, and as such is primarily a matter for my colleague, the Minister for Jobs, Enterprise and Innovation. It would be a cause for concern if sterling's depreciation against the euro were ultimately not reflected in prices here.
I will consider this issue from a macroeconomic perspective. There are numerous sources of uncertainty at present which pose risks to the Irish economy. These risks are primarily external in nature and, as highlighted in budget 2017, include the potential impacts from the UK's recent vote to leave the European Union.
Over the course of 2016 and in particular since the Brexit vote, the euro-sterling rate has appreciated significantly. Since the UK's vote on 23 June the euro has appreciated by over 15% against sterling and is currently trading at a rate of around €1 to 89 pence sterling. In addition, further appreciation remains a distinct possibility with adverse implications for the Irish economy in general, most notably for Irish exports to the UK, especially in the more traditional sectors and also for areas sensitive to cross-Border trade.
While the appreciation of the euro-sterling rate is certainly one factor that can influence retail prices and consumer prices more generally, there are other significant and mostly external factors driving price developments. From an Irish perspective, the decline in the price of transport and energy products over the past two years arising from the fall in the wholesale price of oil has offset price increases in other areas, notably for services.
Annual inflation, as measured by the harmonised index of consumer prices, averaged minus 0.2% in the year to date and is expected to be slightly negative on average for 2016 as a whole. This recent easing in consumer prices has been broad based with food and non-alcoholic beverages, clothing and footwear, furniture and household equipment all recording significant annual price declines this year. This low and even negative rate of consumer price inflation has helped to protect real incomes and has supported consumer spending. This is the context in which we are discussing prices in high street retailers.
All else being equal, the appreciation of the euro against sterling should pass through into lower consumer prices, in particular for the range of goods that are priced in sterling. However, there are a number of factors which may delay this process. In general, consumer prices tend to respond to exchange-rate movements with a lag as firms delay price changes until there is greater certainty around future exchange rates. Also, many Irish firms importing from the UK will have purchased stocks prior to the UK referendum when sterling was at a significantly higher rate than that prevailing today.
It is also important to point out that the depreciation of sterling over the course of this year has increased the cost base for UK-based suppliers which could result in pressure on them to increase their sterling prices. However, the appreciation of the euro would be expected to offset partly, or wholly, such sterling denominated increases, depending on the extent of the appreciation.
This notwithstanding, there are some signs that consumer prices are benefitting from recent exchange-rate developments. For example, overall consumer prices have fallen by 0.2% year-on-year in the three months since the Brexit vote. Similarly, consumer prices of non-energy industrial goods, a large proportion of which we import from the UK, have fallen by an average of nearly 4% over the same period.
To the extent that I or my Department become aware of concerns regarding unwarranted price pressures arising from sterling's depreciation, they will be brought to the attention of the Minister for Jobs, Enterprise and Innovation and her Department which, as I have already noted, has primary responsibility for this consumer issue.
I appreciate the issue goes across a number of different Departments. If there is a large-scale exodus of people to do Christmas shopping in the North, essentially there will be a loss to the Exchequer and to the domestic economy, which obviously puts pressure on jobs here.
The HSBC analyst, David Bloom, predicted an interest rate cut by the Bank of England, which could further weaken sterling possibly leading to parity with the euro. I imagine that people who are purchasing will be watching those kinds of things and will want to time their purchases. Even if the full exchange rate difference were passed on here, it still would not account for the price differential. That price differential is a minimum of 20% in most cases and up to 45% depending on the type of item. While the market in the Republic of Ireland is small, it is even smaller in Northern Ireland and therefore one would imagine there would be a cost differential there, but that does not seem to be the case.
There is a serious issue at play here. People do not really have a choice to shop around because all of the multiples appear to start out with a 20% differential. If that is the case, we must ask whether it is warranted, whether it has been organised and what can be done about it.
I thank the Deputy and I note that point. The Department of Finance is looking at the sterling-to-euro exchange rate from a macroeconomic point of view. The point the Deputy raises is very interesting and relates to the extent to which, if any, changes in sterling that should be to the advantage of an Irish consumer are actually being felt by the Irish consumer. I have already outlined some of the issues that arise, such as a lag in changes being felt, hedging - or when the stock was purchased - and other factors that might delay this type of change. Given the work the Deputy has done and the basket of goods she has looked at, I can see merit in developing the basket and some of the various price indicators, for example, other markets where UK goods might be exported and what the changes have been there.
I encourage the Deputy to sit down with the Minister for Jobs, Enterprise and Innovation to examine this issue. I am sure the Minister is across it, particularly as it warrants further attention. However, we must be sensitive to the timing involved and realise that it may take a bit more time. There are no controls on prices in Ireland in order to allow competition among businesses but it is also the case that if businesses or traders are suspected of coming together to agree the prices they will charge, they can be investigated by the CCPC and could potentially face legal sanction, including fines and imprisonment. If there suspicions or if the Deputy has any evidence to bring to light on this matter, I recommend that she does so. As already stated, to the extent that I or the Department become aware of them, any concerns regarding unwarranted price pressures arising from sterling's depreciation will be brought to the attention of the Minister, Deputy Mitchell O'Connor, and her Department, where responsibility for this issue lies.