Bernard Durkan (Kildare North, Fine Gael)
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267. To ask the Minister for Finance the extent to which he continues to monitor any inflationary tendencies in Ireland with a view to corrective action if required; and if he will make a statement on the matter. [54717/21]

Bernard Durkan (Kildare North, Fine Gael)
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280. To ask the Minister for Finance the extent to which he continues to observe inflationary tendencies in this economy with particular reference to the need to identify their origin; and if he will make a statement on the matter. [54731/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 267 and 280 together.

While Covid-19 had a deflationary impact both in Ireland and internationally last year, inflation has picked up since the beginning of this year. The ‘flash’ HICP inflation rate reached 5.1 per cent in October – the highest rate since 2003. The emergence of inflationary pressures in recent months is not unique to Ireland however, with the euro area flash inflation rate reaching 4.1 per cent in October.

The recent rise 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. More recently, increases in wholesale energy prices have put additional upward pressure on prices, with energy inflation of 18½ per cent recorded in September.

Looking ahead, the most likely scenario is that inflation will moderate over time as temporary factors fade, demand stabilises and supply pressures ease. The Department is forecasting inflation of 2¼ per cent this year and next. However, the recent spike in wholesale energy prices means that there could already be some upside to these projections. Indeed, 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.

The Government is very conscious of inflationary pressures and introduced a range of measures in Budget 2022 to protect households against increases in the cost of living. These include a personal income tax package worth €520m and a social welfare package of over €550m. The fuel allowance was increased by €5 per week to compensate lower income households for the additional energy costs they are likely to incur due to an increase in the carbon tax. There were also increases in the allocation of Early Learning Care and School-Age Childcare to ensure childcare prices do not rise. Nevertheless, my Department will continue to monitor inflationary developments over the coming months.

Bernard Durkan (Kildare North, Fine Gael)
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269. To ask the Minister for Finance the measures available in this jurisdiction to combat such issues as inflation, in Ireland or throughout the Eurozone; and if he will make a statement on the matter. [54719/21]

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.