Select Committee on Budgetary Oversight publishes its Report on Inflation

The Select Committee on Budgetary Oversight has published its Report on Inflation in which it makes a series of recommendations and observations following examination of the issue.

Launching the report, Deputy Neasa Hourigan, Cathaoirleach of the Committee said “for the first time since the financial crisis, higher inflation has become an issue of significant concern for individuals and households. The Committee met with stakeholders in November 2021 to discuss the drivers and impact of inflation”.

Deputy Hourigan said “the Committee heard that the inflation was driven by three main factors: energy costs, supply chain issues and base effects. Due to the source of the inflationary pressures, those on lower and fixed incomes are most impacted (particularly due to energy cost rises) and are the least able to absorb the additional costs. The Committee is very aware that global developments since the Committee held these meetings will exacerbate issues around energy costs and supply chain pressures”.

“The Committee discussed whether inflation would be temporary or whether there was potential for more prolonged inflation and heard how policy decisions from central banks could impact on future inflation”.

The Deputy added “the report also examines potential policy responses to higher inflation and how inflation needs to be considered across budgetary decisions and some potential inflationary risks”.

Observations made in the report include:

  • That the report and related sessions were undertaken prior to the commencement of the current invasion of Ukraine by Russia. It is probable that this event will have consequences on inflation levels within the EU and globally, though the extent and timeframe of these impacts remains unclear.
  • The Committee notes that the current drivers of inflation are primarily global in nature and some are outside Ireland’s control.
  • The Committee notes that base effects have impacted on inflation figures over 2021 (the disruption to date due to Covid-19 would self-correct over the following quarters regardless of other inflationary pressures), however this will not, in of itself, slow the current high levels of inflation.
  • The Committee is concerned that the geo-political situation and high international demand could have a significant negative impact on future energy prices and that this may place a corresponding pressure on households and individuals. As such the Committee is of the view that the State needs to make considerable investments in state owned renewable sources to protect future energy security.
  • The Committee notes that Budget 2022 proposed to offset the impact of inflation as forecast at Budget time. However, the Committee also notes that inflation has exceed these forecasts meaning lower income groups have suffered more in real terms.
  • The Committee notes that further measures will likely be required in Budget 2023, if not before, to mitigate against an increase in the cost of living due to inflation.
  • The Committee notes that inflationary developments will have to be closely monitored and inform publications such as the Stability Programme Update and the Summer Economic Statement, including assessing the risk and potential scenarios of more prolonged inflation.
  • The Committee highlights that it has begun an examination of the Indexation of the Taxation and Social Protection System and will publish a report with its findings.
  • The Committee will continue to consider the impact of inflation as it carries out its work programme in advance of Budget 2023.

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