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Conor Pope: Where will the cost-of-living crisis end?

Grim combination of economic factors is likely to have cost an average household close to €10,000 extra over the last year alone

cost of living

The calls for supermarkets to start lowering their prices or face the spectre of price controls were loud last Monday but had faded to a whisper within 48 hours.

At the start of the week, Minister for State at the Department of Enterprise Neale Richmond was promising to tell supermarkets at a hastily convened midweek meeting of the State’s Retail Forum that they had six weeks to prove they were passing on lower costs to consumers, or risk the Government’s fury.

But almost as soon as the 90-minute meeting ended on Wednesday afternoon, it emerged that, for all the will in the world, the Minister had no big stick with which to threaten the supermarkets – and no carrot to speak of either.

There were no ultimatums issued and no commitments made on expedited price cuts to help consumers crushed under the weight of a cost-of-living crisis that has been hitting them hard on multiple fronts for many months.


In early 2022, it seemed gloomy in the extreme to suggest Irish consumers would be worse off by €2,000 as a result of soaring prices. But we now know that such predictions – made here by this writer – were wildly, almost comically, optimistic.

The reality of the cost-of-living crisis has proven to be much, much worse than that and, for many, the final bill for the crisis this year alone is likely to come close to €10,000.

The annual cost of groceries, according to retail analysts Kantar, is up by almost 17 per cent or €1,200, while domestic energy bills have doubled, with many households spending over €2,000 more on heating and lighting their homes and cooking their meals than in 2020. For hundreds of thousands of people with home loans, the costs have jumped by even more eye-watering amounts, with many annual mortgage bills climbing by around €5,000.

When these three elements are added up, it shows that the household bills of many thousands of people have climbed by in excess of €8,000. But, of course, there are other areas where costs have climbed, including socialising, holidays, clothes, telecommunications services and a whole lot more besides.

Simon Coveney is now considering his next steps, including suggestions he could force retailers to detail just how much money they are making in Ireland

Inflation easing

Figures from the Central Statistics Office (CSO), published on Thursday, suggest that inflation is at least easing. Consumer prices rose at an annual rate of 7.2 per cent last month compared with the 7.7 per cent recorded in March.

When it comes to food prices, the news is bleaker. They were up by more than 13 per cent year on year and by 0.6 per cent in April alone. Sugar was up 38.9 per cent, milk 24.1 per cent, butter 18.9 per cent and eggs 18.3 per cent compared with April 2022.

The scale of the crisis is putting the Government under increasing pressure to do something. And it has done some things, including energy credits worth €800, higher welfare payments and modest tax cuts.

But pressure is mounting on it to do more, and it was that pressure which prompted Neale Richmond’s intervention, such as it was, on grocery pricing this week.

After the Retail Forum meeting, the Minister said he had “received assurances from retailers that, where reductions in input costs filter through to products, consumers will benefit from this”.

As statements go it was pretty woolly and noncommittal, and it was clear Richmond was putting a brave face on things. Ged Nash, the Labour Party’s spokesman on enterprise, went as far as to call it a “capitulation, plain and simple”.

Nash has been making much of the running on prices in recent weeks, although, like Richmond, sometimes his runs have ended in blind alleys. He has called for the Competition and Consumer Protection Commission (CCPC) to investigate potential profiteering by supermarkets – which has so far been a non-starter – and for the Government to use the power it has under the Consumer Protection Act 2007 to impose price caps on staple goods, which is also deeply problematic.

The Labour TD said the forum meeting had “promised little and it seems to have delivered even less” and he pointed out that there had been “no firm commitments to lower prices, only an empty pledge for the price of basic staples to ‘remain competitive’. It looked like the Government were given a dressing down by the big supermarket players, not the other way around,” he claimed.

Curve ball

That is not to say there was no movement on pricing. While many of those in attendance were en route to the meeting, Tesco threw a curve ball by announcing it was cutting the price of an 800g loaf of its own-brand bread by 10 cent from 99 to 89 cent, with other related products also falling in price.

The move was followed by similar announcements from other retailers, mirroring almost exactly what happened a week earlier when 454g of own-brand butter fell by 40 cent, first in Tesco and subsequently across all the multiples. It was the same story five days before that, when Lidl caught its competitors by surprise by announcing a 10 cent cut in the price of 2 litres of own-brand milk. Others fell into line within hours.

Despite the synchronicity of the price moves, retailers were not acting together. It is just the way they do business here. The State’s competition watchdog said as much in a letter sent to Minister for Enterprise Simon Coveney ahead of the Forum meeting.

In the letter, the CCPC once again played down suggestions it might have a role to play in grocery pricing, saying there was no evidence to suggest an emergency or market failure existed in the grocery market to support the introduction of price controls on staple goods.

The letter outlined that while price controls “clearly have a role in certain circumstances”, such as in the context of a monopoly or a natural disaster, now is not the time for such a step

The CCPC said it “has not seen any evidence or analysis to support the suggestion that an emergency or market failure exists in the retail grocery market and that price controls would provide consumer benefits”.

Coveney is now considering his next steps, including suggestions he could force retailers to detail just how much money they are making in Ireland. That might well happen but, given that many retailers guard their financial dealings in Ireland like the third secret of Fatima and have done so for years, it might be a stretch – at least in the short term.

This time last year, tracker mortgage holders were paying rates of between 0.5 and 1.5 per cent. Today... they are paying anything from 4.25 to more than 5 per cent

‘Minimising impact’

Duncan Graham from Retail Excellence was at the meeting and was upbeat when it ended. “We talked about two things really,” he says. “We talked about the commodity price increases that retailers have faced over last year and also the cost of doing business.”

There was, he suggests, “recognition that retailers did hold their prices when the first wave of inflation hit last year” but ultimately passed on increases to consumers.

“As soon as we can see light at the end of the tunnel and as soon as those commodity prices start to drop, they’ll be passed on to consumers,” he believes. “Things are beginning to turn and there is a definite view that as soon as those things turn they will be passed on to the consumer, but it has been a really difficult environment for retail.”

For his part, Arnold Dillon of Retail Ireland says the sector is “actively working to minimise the impact on consumers of massive EU-wide commodity price increases, and this will continue”.

Retail analyst and TU Dublin academic Damian O’Reilly came away from the meeting with the same fairly benign view as Graham and Dillon but stresses that the direction prices go in the months ahead “really depends on commodity prices and input costs coming down more”.

He does not believe retailers are “making excess profits” and points to figures from Tesco’s headquarters in the UK which suggest its margins have taken a hit since the start of the crisis. “I’m not defending the retailers but I don’t see the argument that there’s price gouging happening.”

He points to figures from across the EU highlighting that grocery prices have climbed by an average 27 per cent. “Our prices are up around 17 per cent over the last two years. It is a situation that is not good for the consumer but I would be of the opinion that the major retailers here are looking after the customer the best they can.”

He says the manner in which retailers have all lowered the price of own-brand milk, butter and bread by the same amount at the same time is simply a feature of the market and a sign of a hyper-competitive sector. When asked what product might fall in price next, he points to the cheese counters.

Gas and electricity

Meanwhile, on Tuesday, representatives from the Commission for the Regulation of Utilities (CRU) appeared before the Joint Oireachtas Committee on Environment and Climate Action to talk gas and electricity prices.

The news was not great on that front.

Energy prices have fallen dramatically on wholesale markets over recent months as concerns over supplies prompted by Russia’s invasion of Ukraine have eased somewhat. But strategic moves by Ireland’s gas and electricity companies over the past two years mean significant relief for consumers is a way off yet.

In its opening statement, the CRU said it was “very concerned” at the impact high energy prices were having and expressed hope that energy providers will “reduce prices as soon as possible”.

CRU chairman Jim Gannon noted that Ireland’s energy companies have signed long-term contracts with oil and gas suppliers, so a fall in wholesale prices is unlikely to be reflected in domestic bills “for a period of time”.

While hedging – buying energy months in advance to ensure supply – is a feature of the Irish market, Gannon admitted the CRU has no clear sight of what individual companies’ hedging policies are – and certainly no role in telling then what to do.

“I would say that a fundamental part of competition and supply is how suppliers hedge,” he said. “How they hedge can vary depending on whether or not they predominantly offer, let’s say, dynamic tariffs which are in their infancy. But as the supplier becomes much more dynamic-pricing-focused their hedging requirements are going to be very different to somebody who has a huge swathe of customers who want fixed tariffs.”

‘Stifling innovation’

He suggested that “any intervention would be done with great caution because the concern would be that we would stifle innovation and competition in the market and you’d end up with a homogeneous single thing, whereas the whole idea is to try to ensure that suppliers are competing. Part of the way they’re competing is the products they offer and the way they hedge those products so that they can beat their competitors on price.”

Still, the frustration among CRU members was clear, with commissioner Aoife MacEvilly noting that many households “are really struggling [and] the conversations we have with suppliers are challenging”.

She said the CRU expects prices to “follow on from the market trends and we’ve been very clear to them as well that we’re not here to be apologists for electricity suppliers and their pricing strategies”.

She questioned why the companies were not “out explaining to their customers a bit better where they are in terms of hedging and what customers can expect”.

She said the reason the CRU had taken on this role in recent months was “to manage expectation for customers” and to make it clear that “wholesale prices are still about double where they were, [and are] coming down slower than we’d all like and won’t come down to the level they were before. That’s just the clarity we’re trying to provide to customers.”

MacEvilly was asked if she thought companies were making excessive profits at a time of crisis. She replied it would have to be established if “that is the case”.

She said she recognised that high-profit levels were a concern highlighted across the media. But she added that the CRU operates “from a basis of evidence”, saying three suppliers have left the market because they couldn’t make money, while “two suppliers are handing back money to their customers”.

While there might be signs of slim silver linings on the horizon when it comes to food and energy matters, it is a different story when it comes to interest rates.

Interest rates

Inflation across the EU has fallen significantly in recent months, but European Central Bank president Christine Lagarde told Japan’s Nikkei newspaper this week that we are not out of the woods yet. “We have moved in a very deliberate and decisive way in order to fight inflation,” Lagarde said. Even so, “we still have more ground to cover”.

Covering that ground is costing Irish homeowners and would-be homeowners money – lots and lots of money.

This time last year, tracker mortgage holders were paying rates of between 0.5 and 1.5 per cent. Today, and following seven successive rate hikes from the ECB, they are paying anything from 4.25 to more than 5 per cent. A person with a tracker of €200,000, a margin of 1 per cent and a 20-year repayment period, is paying almost €400 per month more in repayments now than last May.

It is not just tracker mortgage holders who are suffering. Up to €12 billion worth of mortgages will be coming off low fixed rates over the next three years and into a much higher rate environment, while first-time buyers and switchers have seen the most attractive deals disappearing with the cost of borrowing climbing significantly in recent months.

The average interest rate on new mortgages jumped sharply in March, according to figures published on Wednesday by the Central Bank. People taking out new home loans last month signed up to an average mortgage rate of 3.54 per cent. That compares with an average of 2.92 per cent in February and 2.78 per cent in March 2022.

“We’re not yet done with rate hiking,” Bundesbank chief Joachim Nagel told German radio this week, although he added they were at least “coming to the home stretch”.

It is not clear if anyone in this country, outside perhaps of the most cold-hearted of economists, will consider themselves a winner once that finish line is crossed.