The latest consumer price index figures showed another fall in the annual rate of inflation, which fell to 1.7 per cent in May, down from 2.2 per cent in April, according to the Central Statistics Office (CSO). On the face of it, the figures show an ongoing and welcome fall-off in inflationary pressures. However, price pressures remain in some areas, notably parts of the grocery market. This means that in handling this issue, the job of the Government is not completely straightforward.
While there will be a focus on areas of price pressure, it is important first to look at the overall picture. The rate of inflation on a typical basket of goods is moderate and separate CSO data has shown that average wages are rising at 5.6 per cent. Households reliant on welfare have also received annual increases ahead of current inflation – for example 4 per cent for pensions.
In general, then, living standards are rising a bit ahead of prices . Some less well-off households remain under financial pressure but the impact of the cost-of-living crisis on most households should be easing.
Cheaper fuel and airfares helped to hold down the general level of price inflation. On the other side of the equation, the price of food and non-alcoholic beverages rose by a hefty 4 per cent, driven by a range of products. As less well-off households spend more of their income on necessities such as food, this will be hitting their pockets.
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The implications for budget policy are straightforward, even if there will be political rows about this. There is no case to continue the universal household supports seen over the past few years, such as energy credits and double child benefit weeks. There is, however, a need to continue to support less well-off households and this should generally be done via permanent changes, rather than once-off payments.
Budget policy needs to return to a more traditional approach and away from expensive emergency measures. There will be pressure on the Government to help “hard-pressed” households. But the Cabinet needs to focus its fire.
