CONSUMER PRICES WERE an average of 5.6% higher last month compared to a year previous, the largest annual increase in 21 years. 

The latest Consumer Price Index from the Central Statistics Office (CSO) stands as stark evidence of the current inflation crisis. The last time the CPI was this high was in April 2001. 

The area with the largest increase was in transport where costs were an average of 15.4% higher than last year, with petrol prices up 30.3% on last year and diesel up 32.5% on last year. 

The spiralling cost of filling vehicles forced the government to cut excise duty from today, but people have reported filling station prices being increased yesterday before today’s enforced cut. 

Other transport-related costs have increased, with airfares up by 42.3% compared to February of last year, admittedly when foreign travel was severely curtailed due to Covid-19.  

The yearly cost of living is up by 5.6% but the pace of inflation is also shown in the monthly increase, with consumer prices rising by 0.9% in the month between January and February alone. 

The largest monthly decrease was seen in alcoholic beverages, which were down b 1.2% over the month.

Providing some details on staple items, the CSO’s Colin Cotter said:

“The national average price for bread (large (800g) white sliced pan) was up 12.1 cent in the year to January 2022, while the same size brown sliced pan is up 17.3 cent in the year. Bananas per kg increased by 10.2 in the year while the average price for 2.5kg of Potatoes decreased by 22.9 cent. Spaghetti per 500g was up 9.9 cent in the year.”

Eurozone inflation

It comes as the Governing Council of the European Central Bank (ECB) surprised markets today by announcing a faster-than-expected winding down of its stimulus programmes.

Speaking to reporters after the publication of the decision, ECB President Christine Lagarde said that the war in Ukraine means that Eurozone inflation is likely to be “significantly” higher than expected over the short term — mostly due to higher energy prices — while economic growth could be stifled.

Having in December projected inflation across the single currency area to average out at 3.2% for the whole of 2022 before falling below Frankfurt’s annual 2% target in 20223, the ECB now expects it to hit 5.1% for the full year.

Headline inflation is now expected to remain above the 2% target until 2024.

The ECB has also pared back its expectations for Eurozone growth this year. 

Although the economy is expected to expand “robustly” in 2022, Lagarde said, today’s 3.7% growth forecast in 2022 is a downgrade from December’s 4.2% projection for Eurozone GDP.

Against the backdrop of soaring inflation, policymakers decided to wind down its €1.85 trillion Pandemic Emergency Purchase Programme (PEPP) at the end of March as planned.

Rolled out at at the start of the pandemic, the PEPP was a major source of indirect funding for Eurozone governments, helping Ireland and other members of the single currency to borrow at ultra-low costs and spend their way out of the crisis.

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But in a major surprise to markets, the ECB will also gradually wind down its flagship bond-buying instrument, the Asset Purchase Programme (APP) from April with a view to phasing it out altogether from mid-summer. 

Lagarde said that interest rate hikes will follow “sometime after” the APP is wound down.

However, she left the door open to keeping the APP running for longer if circumstances demand it.

“The calibration of net purchases for the third quarter will be data-dependent and reflect our evolving assessment of the outlook,” she said.

“If the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases, the Governing Council will conclude net purchases under the APP in the third quarter.” 

The APP was initially rolled out in 2014 to combat deflationary pressures within the Eurozone as a consequence of the Great Recession. It was wound down in 2018 but restarted again in September 2019 against the backdrop of weakening European economic forecasts.

— Additional reporting by Ian Curran