Paschal Donohoe (Dublin Central, Fine Gael)
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Consumer price (HICP) inflation picked up sharply over the course of last year and stood at 8.3% in May – a multi-decade high. Almost every advanced economy in the world is in the same position, with euro area inflation reaching a record 8.1% in May.

The key driver of the elevated level of inflation at present is the sharp rise in wholesale energy, food and other commodity prices since the onset of the war in Ukraine. Pass-through price effects are now being felt in other sectors and the recent rise in non-energy or ‘core’ inflation, which stood at 4.9% in May, suggests inflationary pressures are becoming increasingly broad-based.

The Government is acutely aware of the cost pressures currently facing households and businesses 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 include changes in tax and social welfare, the provision of an energy credit for households and a temporary reduction in the rate of VAT on the supply of certain energy products.

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 work to help alleviate cost of living challenges, resources are limited and we cannot cushion households and businesses from the entire impact.  The Government has to balance the appropriate response to the increased cost of living in Ireland with the unprecedented level of global economic uncertainty and macroeconomic risk. Furthermore, in calibrating how we respond to the current challenges, it is important that we strike the right balance and ensure that policy doesn’t inadvertently add further inflationary pressures into the system.

Finally, it is worth pointing out that monetary policy is the first line of defence against inflation.  In this context, the European Central Bank has indicated a tightening of policy in the coming months.  By slowing demand in the economy, this should help bring demand and supply back into balance, with positive implications for inflation.