In mid-February, I wrote here that inflation was widely expected to peak in the early months of the year “before falling back over the following 18 months or so towards the levels around 2% that we had become accustomed to.” Highlighting geopolitical threats, I did note that “risks appear to be skewed towards inflation staying higher for longer than is currently anticipated.”
The game changed when Vladimir Putin invaded Ukraine on 24th February. Oil prices initially surged by about 50% while gas prices nearly tripled. Although both have come off their March highs, they remain much higher than pre-war prices. Ominously, there is a growing consensus the war is Ukraine will be prolonged, and growing speculation that Putin could shut off European gas this winter. Meanwhile, international food prices have hit historic highs, even before the impact of Russia’s Black Sea blockade fully feeds through to grain markets. High prices and scarce supply of food and energy will likely get worse before they get better.
Irish consumer prices kept accelerating through May, annual inflation reaching 7.8%. A combination of momentum in prices and the subdued monthly inflation seen in June and July 2021 suggest the annual rate hasn’t peaked yet. Surging inflation is a global phenomenon, and it has everywhere come to dominate political debate around domestic issues. Whether inadvertently or more cynically, this debate has been characterized by much pedaling of myths. So, let’s knock some of those on the head:
*** This article was first published at thejournal.ie on 3rd July 2022 ***Continue reading