Emerald Economics: Unveiling Ireland’s Inflation Battle with Two Indices

“Inflation Hits Irish Consumers: Rising Prices Impact Everyday Life as Consumer Price Index Reveals Soaring Costs”
Emerald Economics: Unveiling Ireland's Inflation Battle with Two Indices

Inflation in Ireland has been a pressing issue, affecting the prices of everyday goods and services. The country measures inflation through two main indices: the Consumer Price Index (CPI) and the Harmonised Index of Consumer Prices (HICP). The CPI is conducted by the Central Statistics Office (CSO) and is based on a monthly survey of 51,000 items. The HICP, on the other hand, is calculated by Eurostat, the EU’s official statistics agency. These two measures have been telling different stories about inflation in Ireland, leading to confusion and debate among analysts and policymakers.

In the past, the CPI and HICP produced similar results, with only slight differences. However, in recent months, there has been a growing divergence between the two indices. In June, Eurostat reported an inflation rate of 4.8% for Ireland, while the CSO posted a rate of 6.1% for the same month. This significant difference has raised questions about the accuracy and reliability of these measures.

The CSO has attributed this disparity to the weighting of certain items in the indices. Even small differences in the items counted can result in dramatic disparities in overall inflation figures. This has become more pronounced in recent months, leading to the contrasting narratives presented by the two measures.

One area where the disparity is evident is in housing costs. The CSO’s inflation figures show that housing, water, electricity, gas, and other fuels have seen the largest price increases in the last 12 months, with an annual increase of just under 16%. This is largely driven by higher mortgage interest repayments, which have risen by more than 46% year-on-year. The recent rate hikes by the European Central Bank (ECB) have exposed mortgage holders to higher interest rates, impacting their monthly repayments.

The cumulative effect of these rate hikes is significant. If the ECB were to raise rates again, households servicing a mortgage of €300,000 could see an additional cost of €80 per month, or €960 per year. This has raised concerns among mortgage holders and mortgage brokers, especially as Irish mortgage rates have surpassed the eurozone average.

In addition to housing costs, other factors contributing to the cost-of-living crisis in Ireland include rising energy costs, food inflation, and increased prices for home renovations. These factors, combined with the continued high inflation and slow price decreases, have created a challenging economic environment for consumers and businesses.

The ECB’s upcoming rate decision is eagerly anticipated, with expectations of further rate hikes. However, the impact of these hikes on homeowners and businesses, already exposed to rising interest rates, remains a concern. The disparity between the CPI and HICP measures of inflation adds another layer of complexity to the situation, as policymakers and analysts rely on different figures to inform their policy responses.

Addressing the divergence between the CPI and HICP will be crucial in gaining a clearer understanding of inflation in Ireland. It is essential to ensure the accuracy and consistency of these measures to make informed policy decisions and effectively address the cost-of-living crisis.