There will have been some relief in Government that the day the details of the latest fuel supports were announced, the first estimate of the inflation rate for April stayed steady at the 3.6 per cent rate announced in March. But this will be tempered by concerns about what happens over the balance of the year.
The rise in the inflation rate is driven by energy costs, up 15.5 per cent on the same month last year, and 2.6 per cent up from the previous month. The April figures were taken around the time the Government-sponsored excise cuts were being introduced and the CSO says “that some fuel prices would have been collected before the extra Government measures on fuel costs were introduced.” So there will be some benefit to come here for the May figures.
The impact on inflation is notable – and higher oil costs have hit some sectors hard as we know. However the inflationary shock is still a long way off 2022, when post-Covid factors and higher gas costs after the Russian invasion of Ukraine sent prices soaring and inflation for the year averaged 7.8 per cent.
The question is what happens next. An easing of Gulf tensions would allow for oil prices to retreat, but there would still be a cost to the economy for a period of months. Troublesome, but probably manageable. If the Strait of Hormuz remains blocked, however, or largely blocked, then more trouble will lie ahead.
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Inflation remains steady; and Conor Pope’s energy saving tips
On today’s Inside Business podcast Cliff Taylor from The Irish Times discusses the latest inflation figures, and our Current Affairs Correspondent Conor Pope offers tips on cutting your energy bills.Headline inflation in the Irish economy remained steady at 3.6% in April, figures published today show.“It’s hard to know how things will go but it looks like we could have a turbulent three to six months where energy is concerned” Cliff Taylor said.For consumers that could mean the need to take a look at the small changes that could, by the year’s end, tally up to substantial savings.The time you spend in the shower, the amount of water you put in the kettle, and how often you put the immersion heater on are all behaviours worth looking at, explains Conor Pope.
In one scenario sketched out by the Department of Finance in its recent forecasts, with oil prices at $90 a barrel this year, inflation would peak at 4.3 per cent later this year and average 3.7 per cent for 2026 as a whole. In a severe scenario, with oil rising as high as $150 a barrel, it would average 4.6 per cent for the full year but by the end of the year would be running at 6.5 per cent – and could keep rising into 2027.
Brent crude is currently trading around $115 a barrel and were this to be maintained, inflation would be set to rise further, possibly heading close to 5 per cent. But who knows where it might be tomorrow, never mind next week.
As we watch the daily ups and downs, the other key issue to watch will be the extent to which inflationary pressures spread. Excluding energy and food, inflation is currently running at a modest 2.3 per cent. But the longer oil – and gas – prices stay high, the more this will feed into higher costs – including for electricity – and wider inflationary pressures as the year goes on. Already a hike in domestic and business gas and electricity bills looks likely.
A lot thus hangs on whether there is some freeing of passage through the Strait of Hormuz in the weeks ahead.
