‘Do not panic’ over pandemic-related inflation’ - chief economist Philip Lane

The recent price inflation is "really part of the pandemic" and people should not panic, the chief economist of the European Central Bank has said.

However, Philip Lane, who was the former governor of the Irish Central Bank, said that significant price increases are "real".

“Do not panic. This is definitely a significant increase in the cost of living so I wouldn’t say we should not worry. This is real,” he told RTÉ’s The Business on Saturday morning.

Irish inflation shot to a 14-year high in October as rising energy costs, supply shortages and increased consumer demand drove up prices.

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Over the past 12 months prices have risen by 5.1 per cent, according to the latest consumer price index from Central Statistics Office (CSO), with the rise last month being the largest recorded since April 2007.

Philip Lane said is was a “significant increase in the cost of living”.

“We have seen very significant increases in the price of energy in particular and unusual increases in many types of manufactured goods,” he said. “But what I would want to emphasise, is this is really part of the pandemic. It is not something that is going to last for a long time so it is not, for those of us who remember, like the 1970s and the 1980s. It is not that type of scenario.”

Phenomenon

Mr Lane said the ECB believes it is a “temporary phenomenon” that will peak late this year, in November or December.

“In other words, next year, what we think is going to be a loss of momentum. There’s going to be a kind of calming down of this and what we’re saying is throughout next year is the inflation rate, quarter by quarter, will be coming down,” he said.

“When we get to 2023, which is just over a year away, inflation is going to be significantly below 2 per cent which is our kind of metric of where inflation should be.”

Mr Lane said there are bottlenecks, but work is ongoing around the world to relieve these.

“Bottlenecks don’t get relieved overnight. But month by month, the acute problems in shipping, the issues in logistics, the specific issues in various manufacturing sectors, will be eased,” he added.

“If a lack of supply now is helping to push up prices, more and more supply next year will work in the opposite direction.”

On wages, he said it was “natural” that one way in which they’re set is on the cost of living.

However, he said there were “special factors” now driving this and things will return to below 2 per cent.