According to the July Credit Union Consumer Sentiment Index, the main drivers of inflation are energy costs and mortgage rate hikes. Household budgets are feeling the impact of rising food prices, which are increasing at double-digit rates.
The latest figures from Eurostat, the European statistics agency, reveal a significant decrease in inflation in Ireland over the past year. In the 12 months leading up to June 2023, the inflation rate dropped to 4.8%, with a monthly increase of only 0.8%.
By contrast, in June 2022, inflation reached a high of 9.6% due to soaring energy prices resulting from Russia’s invasion of Ukraine.
The Credit Union Consumer Index indicates that most Irish consumers expect inflation to be around 5% in the coming year. However, older consumers, women, and those facing financial difficulties are more pessimistic and anticipate even higher price increases.
Consumers believe that energy costs will be the primary driver of future inflation. The survey conducted for the sentiment index asked about the factors that respondents believe will have the biggest impact on Irish inflation in the next 12 months, and the majority identified energy, food, and housing as the main cost-of-living pressures.
Economist Austin Hughes, who oversees the survey, explains that the scale of the increase in energy costs and the uncertainty surrounding winter costs have made energy expenses a central concern for consumers in relation to inflation prospects.
Interestingly, most people do not view wage increases as a significant driver of inflation, despite the Central Bank’s warnings about the risks of a “wage-price spiral.”
The sentiment index suggests that many Irish consumers consider food and housing costs to be the main factors driving inflation in the next 12 months.
The European Central Bank (ECB) is expected to announce its ninth interest rate hike next Thursday in its ongoing efforts to control inflation in the eurozone. The ECB’s goal is to bring inflation below 2% by raising interest rates and encouraging savings.
Contrary to the ECB’s intentions, the consumer sentiment index shows that most people believe the central bank’s actions to address inflation are counterproductive, as higher mortgage costs significantly contribute to domestic inflation.
Economist Austin Hughes highlights the irony that one in four Irish consumers see the ECB’s policy actions as the most important driver of Irish inflation in the year ahead.
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