Warning from Department of Finance: Watch Out for the Sting in Falling Inflation

The recent decline in inflation rates has generated a favourable response, however, the Department of Finance has issued a caution regarding the potential downsides of a decreasing cost of living.

In a meeting with the Public Accounts Committee, the Department of Finance is anticipated to highlight the possible delayed effects of increased interest rates on the overall economy. Despite inflation decreasing to 2.3 per cent, the drop has been partly attributed to lower energy prices, which are currently 9 per cent lower compared to the previous year.

Minister for Finance Michael McGrath has expressed optimism about the data and has indicated that reduced energy costs, coupled with government assistance, are likely to result in decreased household bills in the coming months. However, the European Central Bank (ECB) may still need to address the consequences of its previous rate hikes, as emphasized by John Hogan, the secretary general of the Department of Finance.

Hogan cautioned the Public Accounts Committee that the repercussions of the ECB’s policies may not have been fully realized yet, both in Ireland and globally. He elucidated, “Monetary policy acts on economic conditions with a lag. The cumulative effects of the increase in rates have likely not been fully felt yet, either in Ireland or globally.”

Notwithstanding these warnings, the State’s consumer watchdog currently has no immediate plans to conduct an investigation into branded product pricing, in contrast to the UK’s Competition and Markets Authority. The UK report disclosed that suppliers may have contributed to food inflation by raising prices beyond their costs, particularly in the food and groceries sector.

Conversely, the Competition and Consumer Protection Commission (CCPC) in Ireland have stated that they have not conducted a similar study in the country and stressed that in a competitive market, traders have the freedom to establish and modify their prices for goods and services. The commission added, “Charging high prices is not, of itself, generally a breach of competition or consumer protection law.”

As the discourse on falling inflation persists, it is imperative for both consumers and businesses to remain informed about the potential impact on the economy and to monitor any subsequent changes.