Families feel the pinch as inflation soars towards 10%, warn reports

Families are feeling the pinch as rising prices drive inflation towards 10 per cent, separate reports warn on Monday.

Goodbody’s Irish Economy Health Check for June says Irish inflation is expected to approach 10 per cent by the end of the year, echoing trends in the US and UK.

The stockbroker dubs the problem the “biggest near-term concern” for the Republic’s growth prospects this year.

“Broadening inflation pressures, including food, higher producer prices and wage inflation are all contributing to the current prices pressures,” Goodbody said.

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Real earnings could fall up to 4 per cent this year, the biggest slide since a financial crash sent the Republic into recession in 2008.

Meanwhile, Bank of Ireland’s Economic Pulse, says one-third of Irish families complain they are “just making ends meet” as the prices of goods and services accelerate.

This is up from one in four at the start of the year, according to Loretta O’Sullivan, the bank’s group chief economist.

Bank of Ireland’s Economic Pulse, which gauges the business and consumer mood was 78.8 this month, down 3.9 points on May, indicating less confidence across the board.

“Irish households have been jumpy, with the consumer pulse backpedalling in June after rallying in May,” said Ms O’Sullivan. “Looming interest rate hikes mean higher mortgage bills for some households and contributed to some slippage in the housing pulse this month.”

Goodbody speculated that aid for families will feature heavily in Budget 2023, as the stockbroker believes some households will need support over the coming months as inflation continues rising. The firm warned that most people will feel the impact of next month’s European Central Bank interest rate increases relatively soon.

The bank’s president, Christine Lagarde, indicated recently that the first increase is likely to be 0.25 per cent when announced in July.

“For households, two-thirds of loans are either variable or fixed for less than one year,” said Goodbody. “A further 13 per cent are fixed for less than three years.”

Goodbody calculates that interest rate burdens will rise over coming years, but should peak at less than half the level they hit in 2008.

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Its health check states that rates should hit a high of 2.5 per cent. Most experts expect Europe to boost borrowing charges further in September.

Fortunately, most Irish families are facing this squeeze in a good position as they hoarded cash while locked down during Covid-19, said Goodbody.

“Household net wealth is at all-time highs and households have built up deposits of €23 billion, 17 per cent of disposable income, over the pandemic period,” noted the broker.

Goodbody and those who took part in Bank of Ireland’s pulse survey agree that house prices appear to have peaked.

Bank of Ireland’s housing pulse slipped almost five points in June, indicating that fewer people expected property prices to keep rising, particularly with an interest rate hike on the horizon.

Goodbody cautioned that a recession in the US could hit investment in the Republic, although the broker has yet to see any impact here.

The firm is cutting its growth prediction for next year, with domestic demand likely to grow 2.5 per cent in 2023, from a previous forecast of 3.3. per cent.