The economic foolhardiness of the Government response to the fuel protests is there for all to see and no one is even attempting to deny it. The inevitability of the response is equally apparent. The Government was caught off guard and bought itself out of trouble in the short term but has set itself up for more trouble down the road.
The naive assumption – although I doubt anyone in Government assumes for a minute that it will happen – is that the various hauliers, agricultural contractors and other “patriots” who will benefit from the cuts in fuel prices will pass on the benefit to their customers and keep their prices down for the good of the “real people of Ireland” whom they claim to champion.
There is nothing about human nature that says this is even remotely likely. There is even less about the mindset of someone who will sit in a €160,000 tractor on the M50 disrupting the lives of thousands of people in pursuit of their own sectional interest that would lead you to believe that altruism is a big part of their vibe.
We, they and the Government all know that they will pocket the savings and still raise their prices. Even if they passed on the savings, it would not make much difference. Inflation is here now and has started to show up in official figures. It was 3.6 per cent in March, its highest in two years, driven by 12.3 per cent surge in energy prices.
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Inflation’s pernicious nature means it will spread everywhere and become self-reinforcing. The risk of such an inflationary spiral is the reason markets are so terrified of the consequences of Donald Trump’s latest misadventure in the Gulf.
Inflation and human nature means the €505 million the Government has committed to reducing fuel prices is at best dead money. It will just get lost in the wash. Unlike targeted payments such as social welfare, it will not put money in the pockets of those who need it most. At worst it could add to inflation pressures by feeding demand and the expectation of further concessions including public-sector pay increases.
The Department of Finance is clearly not blind to the risks of inflation. The wounds of the post-Covid spike that saw inflation hit 9.2 per cent in 2022 have only just healed. They would doubtless have flagged the danger of a €505 million package. But it is also clear that the short-term political imperative to open the roads trumped the argument for economic caution. That is how democracy works.
The Government will, for the moment, be preoccupied with the fallout from the protests and concentrate on damping down the embers. There is much talk about an upending of politics but fundamentally the disruption was a failure of policing. The Dublin riot of 2023 showed the Garda will respond and adapt.
The real lesson for the Government from the weekend is that inflation is here and it had better face up to it. To date it has – along with the rest us – been whistling past the graveyard hoping that oil prices would return to normal once hostilities ceased in the Gulf.
We have passed a couple of inflection points that make that unlikely. Nearly all the oil tankers that were at sea when the war began have now docked at their destinations. Very few have left the Gulf since the war began and a lot of infrastructure has been damaged, Even if peace really broke out tomorrow – which seems unlikely – it will take many months for supply to return to normal and oil prices to fall back to pre-crisis levels.
At a minimum the Government should be assuming a prolonged spike in inflation and more prudently the risk that it will lead to a period of structural inflation where economic growth falters and interest rates rise.
The other takeaway for the Government is that the inflationary genie is out of the bottle. The public mood has soured. People are already struggling financially and all it took was a few WhatsApp groups feeding off their inchoate anger to unleash chaos.
Stopping the fuel protesters with more effective policing will not solve the problem. The pressure will find other fault lines and escape. Trade unions will have noted the concessions obtained by fuel protesters and contrasted it with how legal industrial action by their members is received. Pay demands are clearly on the way. The spiral has begun.
What the Government patently should not be doing – but as the Tánaiste Simon Harris did on Tuesday – is doubling down on commitments to cut taxes in the budget this autumn. This is the time to manage expectations and not feed them.
