Thursday, 16 June 2022
Department of Finance
71. To ask the Minister for Finance if he intends to introduce more targeted measures to support lower and middle-income families in response to the annual rate of inflation rising to 7.8% in May 2022; and if he will make a statement on the matter. [31179/22]
Inflation picked up sharply over the course of the last year, and in May stood at 8.3 per cent – the third consecutive month of record high inflation. Almost every advanced country in the world is in the same position, with euro area inflation reaching a record 8.1 per cent in May.
The key driver behind the elevated level of inflation at present is the sharp rise in wholesale energy prices since the onset of the war in Ukraine. Looking ahead increases in wholesale energy prices will continue to feed into higher energy inflation over the coming months. Pass-through price effects are expected in other sectors, such as food (via fertilisers and fuel costs) and consumer goods (via higher energy inputs). Indeed, the recent rise in core inflation suggests that inflationary pressures are becoming increasingly broad-based.
At the time of SPU 2022, the Department forecast average inflation of 6¼ per cent for this year. However, with many of the risks outlined in the SPU having already come to pass, the annual rate will no doubt be higher. Needless to say, the war in Ukraine and in particular the escalation of sanctions against Russia will continue to shape the outlook for inflation over the short term.
The Government is acutely aware of the cost pressures currently facing businesses and households, in particular those on low incomes, and has responded to help alleviate some of this burden. On a cumulative basis, the Government has announced €2.4 billion in cost of living measures since last October. These measures have included changes in tax and social welfare, the provision of an energy credit for households, a temporary reduction in the rate of VAT on the supply of gas and electricity and a reduction in the excise rate for petrol, diesel and marked gas oil. Distributional analyses of the February and April cost of living packages show that low-income households have benefitted the most from the policy changes introduced.
However, it is important to bear in mind that the causes of current price pressures are not within our control. Whilst the Government will continue to help with the cost of living challenge, we must be cognisant that resources are limited and we cannot cushion households and businesses from the entire impact of the current shock. Overall, we will be aiming to design policy in a manner that does not add to inflationary pressures – in other words, budgetary policy itself must not become part of the problem.