The Central Bank estimates the Government’s breach its 5% spending rule is having the effect of adding about 0.5 of a percentage point to annual inflation
Inflation, which rises with the unrequited money supply to the market, puts a heavy burden on people. / You can see the animation movie of this image from my iStock video portfolio. Video number: 1794822796, the budget watchdog, in its latest report. Quoting Central Bank research, it says that by adding to demand in the economy, Government policy has pushed up prices and is, in effect, costing the average household €1,000 a year.
It points out, in particular, that in an open economy – and Ireland is one of the most open – a higher level of demand typically leads to bigger increases in the prices of non-tradable services such as the domestic ones we avail of every day, compared to goods, many of which are traded on international markets.
For all these reasons, higher services inflation can be expected to “linger” in the Irish economy for longer, particularly in areas where there are shortages of supply – areas including doctors, childcare and, of course, rental property.On the analysis from the Fiscal Council, the Government is running to stand still to some extent.
As the paper points out, a higher proportion of people working in better paid jobs could also have had an impact, but it is fair to conclude that the slightly higher tax take on many earners was the main contributor. If Minister for Finance Jack Chamber wants to avoid this happening again in 2025 it will cost some €1.1 billion to €1.2 billion to fully adjust tax credits and the standard band for expected wage inflation, using up the bulk of the €1.4 billion available for tax reductions .
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