Inflation-easing measures should be targeted, Makhlouf says

Any measures should be temporary, says Central Bank governor

Central Bank governor Gabriel Makhlouf said on Wednesday that policy measures to ease the impact of soaring inflation should be targeted and temporary, so that they do not contribute to the problem.

“If, from a political perspective, a decision is made to address the impact of inflation on the cost of living, I think it is important that measures are targeted. I’d also suggest that measures should be temporary,” he said. “And I would be cautious about how far I’d go before I actually became part of the problem.”

Mr Makhlouf highlighted that work his institution has carried out shows that households on lower incomes, older individuals, and those living in rural areas are being disproportionately affected by the recent spike in inflation, because they tend to spend more on energy and food, where costs are soaring.

His comments came on a day when Electric Ireland, the retail arm of ESB, became the latest energy supplier to announce a major price hike in the face of surging oil and gas prices internationally. From May, its customers face average hikes in electricity and gas bills of 23.4 per cent and 24.8 per cent, respectively.


The Government’s response to date to ease the impact of inflation on households has to been broad-based, through energy credits and fuel excise cuts.

Inflation in the Republic, measured under the harmonised index of consumer prices, was running at 5.7 per cent in February, while it stood at 5.8 per cent across the euro zone. The European Central Bank’s inflation target is about 2 per cent.

While Mr Makhlouf said he could “definitely” see consumer prices moving higher, he predicted that inflation would peak in the first half of this year. However, he declined to give figures as the Central Bank is currently finalising its latest set of forecasts in advance of planned publication next week.

Current rates of inflation are driven by higher global energy prices and supply bottlenecks stemming from the Covid-19 pandemic and exacerbated by the war in Ukraine. Raising interest rates are seen by economists as a less effective tool for tackling supply-driven inflation than demand-fuelled price increases.

Still, Mr Makhlouf reiterated the European Central Bank line that it will take "whatever action is needed" to fulfil its mandate to pursue consumer price stability.

Deposit interest rate

Fellow ECB governing council member Robert Holzmann, the Austrian central bank governor, said in an interview published on Tuesday that the bank should raise its key deposit interest rate from minus 0.5 per cent to zero by year-end or it would risk having to raise it even more abruptly next year to bring down inflation.

He was the first member of the ECB monetary policy-setting body to explicitly back market expectations for the ECB to raise its deposit rate by 0.5 percentage points by its December meeting in the face of prices growing at a record pace in the euro area.

Meanwhile, Mr Makhlouf said that, all told, the outlook for the domestic economy remained “broadly positive” in spite of uncertainty around the war in Ukraine, the path of the Covid-19 pandemic and inflation.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times