Written answers

Thursday, 16 December 2021

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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265. To ask the Minister for Finance the extent to which inflation continues to be a threat to Ireland and other EU countries; the degree to which he and his EU colleagues can rely on measures to combat the issue; and if he will make a statement on the matter. [62735/21]

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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271. To ask the Minister for Finance the extent to which he and his EU colleagues have identified the need for particular measures to counter inflation; and if he will make a statement on the matter. [62741/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 265 and 271 together.

At both the ECOFIN and Eurogroup meetings, my fellow Ministers and I work alongside the European Commission and the European Central Bank to take stock of the latest economic situation, including inflation developments throughout the EU.

The economic recovery throughout this year has been robust, with recent indicators pointing to strong growth. This momentum reflects our coordinated policy support, successful vaccine rollout and the boost to reforms and investment now that recovery funding has started to flow. Indeed, growth figures for the third quarter show that the euro area is nearly back to pre-pandemic levels of output.

However, the uptick in new cases and emergence of the omicron variant present a downside risk to the economic outlook. In addition, the sharp rebound in global demand and persistent production and transport disruptions has brought elevated rates of inflation.

The latest Eurostat estimates point to euro area annual inflation of 4.9 per cent in November. This was largely driven by energy inflation, which increased to an estimated 27.4 per cent. Pandemic-related effects, such as the impact of temporary VAT reductions, and technical factors, such as measurement issues, added further volatility. HICP inflation reached 5.4 per cent in Ireland in the same period.

The latest figures point to inflation, including energy prices, remaining high over the course of the year, before gradually easing next year. The ECB projects inflation to average 2.2 per cent this year but to decline to rates of 1.7 and 1.5 per cent in 2022 and 2023, respectively. Both 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.

As the Deputy is aware, the ECB has an independent mandate to maintain price stability, and uses the range of monetary policy instruments to target an inflation rate of 2 per cent over the medium-term. The ECB has stated that the outlook for inflation over the medium-term remains subdued. Core inflation – which strips out energy and non-processed food inflation – was 2.6 per cent in November.

That said, energy prices can entail wide-ranging consequences for inflation and raise costs for businesses and families. In recognition of these potential 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 announced a range of measures including targeted social welfare initiatives. 

In addition, at an EU level, the Commission has issued a Communication on Tackling Rising Energy Prices, and the matter was discussed at various Council configurations. The Communication emphasises the broad nature of the impact and policy response.

In short, my fellow Finance Ministers and I all agree that this is an important issue and that we need to continue closely monitoring inflation and energy price developments and the potential implications for our economies.

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