Bernard Durkan (Kildare North, Fine Gael)
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223. To ask the Minister for Finance if he has identified particular steps needed to check inflation in the future; and if he will make a statement on the matter. [45261/21]

Bernard Durkan (Kildare North, Fine Gael)
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226. To ask the Minister for Finance the extent to which he is contemplating anti-inflationary measures; and if he will make a statement on the matter. [45264/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 223 and 226 together.

While Covid-19 had a deflationary impact both in Ireland and internationally last year, inflation has picked up since the beginning of this year. The annual rate of HICP inflation rose to 3 per cent in August – the highest rate since 2008. Similar trends have been observed across advanced economies, with inflation rates of 5.3, 3.2 and 3 per cent recorded in the US, UK and euro area in August.

However, the increase in inflation since the beginning of this year is largely explained by temporary factors, including ‘base effects’ associated with the normalisation of oil prices following their collapse last spring as well as an imbalance between demand and supply following the re-opening of the economy. This has been compounded by supply chain disruptions, namely the availability of inputs (e.g. semi-conductors) as well as capacity constraints for shipping, and shifts in demand as the pandemic has boosted the demand for some durable goods and reduced the demand for others.

Looking beyond the short-term, however, it seems likely that these temporary factors will fade as demand stabilises and supply pressures ease. Consistent with this view, the ECB last week reiterated that the current inflationary pressures are largely temporary and inflation in the euro area is still expected to remain below 2 per cent over the medium term.

Since the onset of the pandemic the Government has engaged in counter-cyclical budgetary policy. An unprecedented amount of resources has been directed at preserving incomes and helping businesses as the State ‘leaned against the wind’. As the recovery takes hold, the same approach must be taken. Temporary emergency supports will be unwound and public expenditure ceilings will be fixed at the trend growth rate of the economy to prevent the State adding ‘fuel to the fire’.

More specifically, the Government is very conscious of inflationary pressures in certain areas, particularly in relation to construction. The “Housing for All” strategy, for example, has a specific focus on tackling supply side constraints. My Department will continue to closely monitor and analyse inflationary developments and will publish updated inflation forecasts alongside the Budget in the autumn.

Bernard Durkan (Kildare North, Fine Gael)
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225. To ask the Minister for Finance if inflation rates in Ireland are indicative of any particular vulnerabilities arising from Brexit or otherwise; and if he will make a statement on the matter. [45263/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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While Covid-19 had a deflationary impact last year, inflation has picked up since the beginning of this year. The annual rate of HICP inflation rate rose to 3 per cent in August – the highest rate since 2008. Similar trends have been observed across advanced economies, with inflation rates of 5.3, 3.2 and 3 per cent recorded in the US, UK and euro area in August.

The increase in inflation since the beginning of this year is largely explained by temporary factors, which are expected to fade over time. These include ‘base effects’ associated with the normalisation of oil prices following their collapse last spring as well as an imbalance between demand and supply following the re-opening of the economy. This has been compounded by supply chain disruptions, namely the availability of inputs (e.g. semi-conductors) as well as capacity constraints for shipping, and shifts in demand as the pandemic has boosted the demand for some durable goods and reduced the demand for others.

It’s possible that higher trade costs as a result of Brexit can in part explain the emergence of inflationary pressures in recent months. Indeed, non-energy industrial goods inflation which consists largely of UK imports, has picked up since January and various business surveys have cited Brexit related customs checks as a key driver of recent price increases. The uptick in the wholesale price index in recent months may in part be explained by Brexit.

The emergence of inflationary pressures has prompted a debate regarding the likely persistence of these price dynamics as consistently higher inflation could trigger monetary policy changes by the ECB, with implications for the cost of Government borrowing. Looking beyond the short-term, however, it seems likely that these temporary factors will fade as demand stabilises and supply pressures ease. Consistent with this view, the ECB recently reiterated that the current inflationary pressures are largely temporary and inflation in the euro area is still expected to remain below 2 per cent over the medium term. Nevertheless, my Department will continue to closely monitor and analyse inflationary developments and will publish updated inflation and economic forecasts alongside the Budget in the autumn.