Simon Coveney (Cork South Central, Fine Gael)
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My Department continuously monitors the areas which are generating high headline inflation.

As a small, open trading economy Ireland is exposed to global inflationary pressures, including fluctuations on international markets for energy, commodities and food. Ireland is effectively a price taker on most international markets, and many of the drivers of Irish inflation are outside our control. Our remote geographic location can also add to transport costs for goods, which along with our small market size, can add to costs for businesses.

As a result of these inflationary pressures, input costs have gone up for many businesses. However, wholesale price inflation has levelled off across a number of areas in recent months. Irish wholesale electricity prices were 72.5% lower in August 2023 than in August 2022, and while wholesale prices for construction products rose by 2.1% in the year, overall, manufacturing producer prices were 0.3% lower in August 2023 than August 2022. Although still elevated, consumer price inflation is generally declining, and reached 4.9% in August – below the broader Euro Area rate of 5.3%.

Although the Government cannot fully insulate individuals and businesses from developments in international markets that are outside of our control, we have been proactive in putting in place measures to remedy the fallout from higher rates of inflation. The Government is committed to supporting enterprise and Budget 2024 continues this approach. Among the measures included, are:

• The 9% VAT reduction for gas and electricity is being extended for an additional 12 months, until 31^stOctober 2024;
• The temporary excise rate reductions applying to auto diesel, petrol and marked gas oil which were due to expire on 31 October 2023 are being extended until 31 March 2024;
• An increase in VAT registration thresholds for SMEs to €40,000 for services and €80,000 for goods;
• An increase in the R&D tax credit from 25% to 30%, as well as increasing the first-year upfront payment from €25,000 to €50,000, which will be of particular benefit to SMEs;
• Introduction of the Increased Cost of Business Scheme, which will provide a once-off grant to benefit up to 130,000 small and medium businesses at a cost of €250 million.

Analysis from the Central Bank of Ireland suggests that profits have contributed significantly to ‘Gross Value-Added inflation’ – an alternative measure of inflation – across 2021 and 2022, at 5% per annum. While I acknowledge that the impact of energy price increases varies significantly by sector, and that firms in increasing their prices, may be acting in a precautionary way in order to offset future cost increases, I believe it is important that firms act sensibly in their pricing to reduce risks of a wage-price spiral which would have lasting effects on inflation.