Prices rise at fastest rate since 1984 as inflation surges to 7.8%

Consumer prices soared by 7.8 per cent in the year to May 2022, the largest increase in almost 38 years, the Central Statistics Office (CSO) has confirmed. The annual rate of inflation in the Irish market rose from 7 per cent in April, and is now at its highest rate since the third quarter of 1984.

The CSO’s Consumer Price Index (CPI) rose 0.9 per cent between April and May alone, heaping further pressure on household finances as they contend with the accelerated pace of price increases amid warnings that annual inflation could reach double-digits later this year.

The fast-rising cost of energy, housing and transport have all contributed to the overall surge in the cost of living over the past year, with energy and housing prices once again the largest drivers of inflation in May.

Housing costs are likely to climb further in coming months after the European Central Bank on Thursday prepared the market for a series of interest rate rises, starting with a quarter-percentage point move in July and a possible larger increase in September. Such increases would immediately have an impact on variable rate and tracker mortgages, a dynamic which has led to recent growth in the popularity of fixed-rate loans.

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Energy prices, which swelled 9.8 per cent in the month, have skyrocketed 56.7 per cent over the past year as electricity and gas suppliers responded to higher wholesale costs by announcing a string of price increases.

Over the 12 months to May electricity prices have risen 40.9 per cent and gas prices are up 57.1 per cent, while the cost of home heating oil has more than doubled.

Private rents are 11.2 per cent higher than they were a year ago, and rose 1.6 per cent on average in May, the CPI shows.

Food and non-alcoholic beverage prices, meanwhile, have increased 4.5 per cent over the past year and were up 0.8 per cent in the month, while alcohol prices have now climbed 7.8 per cent in 12 months after posting a 3.3 per cent rise in May.

Petrol prices have increased 25.9 per cent year-on-year, while diesel prices have shot up 41.6 per cent. The CSO’s wider transport category shows a 16.5 per cent annual rate of increase, but overall transport prices decreased 1.7 per cent in the month. This was due to lower airfares compared to those seen in April and the introduction of a Government measure to reduce public transport fares as part of a package intended to alleviate pressures on consumers.

“The sharpest increases are being seen in the costs of everyday essentials rather than the items where the typical consumer may have scope to cut back spending,” said Austin Hughes, chief economist at KBC Bank Ireland.

“With fuel prices moving even higher in early June and knock-on impacts of higher transport costs and global supply problems yet to be fully seen, the likelihood is that Irish inflation has not yet peaked. It seems probable that headline inflation could push close to 9 per cent and might even threaten 10 per cent depending on the vagaries of global energy markets.”

The CSO also published national average prices for selected goods for the month of April. They show that the average price of diesel at €1.89 per litre and petrol at €1.81 per litre climbed by 54.1 cent (40.1 per cent) and 34.9 cent (23.9 per cent) respectively over a 12-month period.

The national average price for an 800g white sliced pan rose 12.4 cent in the year, while the average cost of the same size of brown sliced pan was 17.4 cent higher. A 500g packet of spaghetti has increased 19.3 cent, but the average price for 2.5kg of potatoes has dropped 28.5 cent.

The national average price of a take-home 50cl can of lager was €2.16 in April, up 27.9 cent on the average price in April 2021, while a take-home 50cl can of cider was up 14.1 cent at €2.36.

In April 2022, the national average price of a pint of stout in licensed premises was €5.12, while the average pint of lager cost €5.50, the CSO said. It could not provide an annual comparison as pubs were closed in April 2021 due to Covid-19 lockdown restrictions.

When inflation last exceeded 7.8 per cent – the 7.9 per cent rate seen in the third quarter of 1984 – the Irish consumer economy was a markedly different environment. At the time the items in the “typical” basket of goods and services used by the CSO to calculate inflation included black-and-white television sets, telegrams and vinyl LP records.

There have also been some noticeable changes to the weighting assigned to the items in today’s basket of goods and services compared to 1984, the statistics body added. Bread represented 1.37 per cent of the overall basket in 1984, but it is now only 0.6 per cent. Petrol and diesel had a weighting of 6.09 per cent in 1984, but it is now 3.71 per cent.

And perhaps most strikingly of all, rent represented 1.18 per cent of the CSO’s basket in 1984, but it now accounts for 7.64 per cent.