Bernard Durkan (Kildare North, Fine Gael)
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105. To ask the Minister for Finance the extent to which he sees the possibility of inflation causing complications in the course of recovery from the financial effects of Covid-19; if this issue can be addressed at national or EU level in order to achieve the most effective and least painful methods of dealing with the issue; and if he will make a statement on the matter. [54350/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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The flash estimate for HICP inflation in October is 5.1 per cent, which would be the highest rate since 2003. The emergence of inflationary pressures in recent months is not unique to Ireland however, with the euro area flash estimate reaching 4.1 per cent.

The recent increase in inflation is partly explained by temporary factors, which are expected to fade over time, including ‘base effects’ associated with the ‘normalisation’ of oil prices following their collapse last spring and the imbalance between supply and demand that emerged following re-opening. This has been compounded by global supply chain disruptions, including transport bottlenecks, input shortages (e.g. semi-conductors) and labour supply shortages in some sectors.

Looking ahead, the most likely scenario is that inflation will moderate over the course of next year as temporary factors fade, demand stabilises and supply catches up. At the time of the Budget, inflation of around 2¼ per cent was projected for this year and next. However, the recent spike in international wholesale energy prices means there could already be some upside to these projections. A scenario analysis outlining the macroeconomic implications of higher than expected inflation is set out in the Economic and Fiscal Outlook published with the Budget.

Consistent with this outlook, the Commission and the ECB are confident that elevated inflation is linked to temporary factors, supply-side constraints and the recovery in demand as our economies reopen. That said, energy prices can entail wide-ranging consequences for inflation including for businesses and families. In recognition of the social impacts, many Member States have introduced targeted measures to protect vulnerable households from energy poverty. In framing Budget 2022, I was conscious of these cost of living pressures, and therefore announced a range of measures including targeted social welfare initiatives.

Additionally, the European Commission has issued a Communication on Tackling Rising Energy Prices, and the matter was discussed at various Council configurations. In short, my fellow Finance Ministers and I all agree that this is an important issue and that we need to continue monitoring inflation and energy price developments and the potential implications of these for our economies.