2025-12-18

170. Deputy Pearse Doherty asked the Tánaiste and Minister for Finance the updated projections from his Department in the wake of recent CSO inflation figures; and if he will make a statement on the matter. [73720/25]

Last week, the CSO published inflation figures of 3.2%. That is the highest rate we have seen in almost two years and way above what the Department of Finance projected on budget day. At that time, it was projected that we would be looking at an inflation rate for this year of 1.8%, which is starting to look like wishful thinking. How were the Department's projections so far off? Has the Tánaiste asked the Deputy to update them?

I engaged with my Department as recently as yesterday on this because we had previous engagements in certain forums in respect of it. The Department's clear view is that an uptick in inflation was anticipated in its forecasts. In that context, it points to the issue of base effects. It has provided a graph that I can send to the Deputy. These effects need to be factored in. While the headline figure for November was slightly higher than anticipated, we stress that monthly figures are volatile and the Department's assessment of inflation for next year has not materially changed. At the time of the budget, my Department forecast an annual HICP inflation rate of 1.9% for 2026. We debated the ESRI report only an hour ago. The ESRI’s forecasts were published just morning. It has revised down its forecast for CPI for next year. It is important to stress that wages are growing faster than prices and that the average worker is seeing their wages outstrip price rises for the first time in a while. As the Deputy well knows, the Department undertakes two macroeconomic forecasting rounds each year in spring and autumn. Both of these are aligned with the European Union’s budgetary cycle. The autumn forecasts published in September alongside the budget were endorsed by IFAC. The inflation rate for this year was projected to average 1.8% in the autumn forecasting round. In the year to date, namely January to November, inflation has averaged 2%. This forecast was calibrated on the assumption of an acceleration in the inflation rate in the second half of the year due, in part, to base effects. In other words, annual price changes are being influenced by the very low reading recorded a year ago. In publishing its data, the Central Statistics Office outlined the role of the base effects in pushing up the annual rate of inflation since September. Taking these base effects into account, it is important to note that the price level in November was lower than in August. As a result, annual inflation is likely to moderate somewhat over the coming months. For next year, my Department is projecting an average inflation rate of 1.9% and the range of other forecasts extend from 1.4% in the case of the Central bank to 1.9% in the case of the European Commission.

People are being crucified as a result of the cost-of-living crisis. I have raised this with the Tánaiste time and again. Inflation is going back up and is eating away at workers' wages. It is leaving households struggling to make ends meet. Real wages declined in 2022 and 2023. They only increased by 0.1% in 2024. We are in danger of seeing the same again in 2025. The Tánaiste has made the point repeatedly about wages outpacing inflation. Over the past three months, however, we have again seen inflation outpacing wages. Inflation is going up higher than wages. This year, the Government brought forward a budget based on certain inflation projections. It appears those projections are no longer credible. The Government delivered a budget in 2025 where it thought inflation was going to be 1.8% this year and the CSO is telling us it is nearly double that. It is estimating it at 3.2%. Surely there is a need to revise what the Government has done. People are being fleeced, and the Government expected something very different from what is actually happening.

I accept that cost-of-living pressures are real for people. This House regularly debates what the different policy proposals to address that should be. In my Department's projections, which are obviously provided independent of the political system, inflation was estimated to average 1.8% in the autumn forecasting round. Between January and November, it has averaged 2%. On the forecasting provided by my Department in respect of budget 2026, which was delivered in October, the forecast is actually at the outer end of the forecasts of a number of other agencies and organisations. The Central Bank was predicting 1.4%. The European Commission was projecting 1.9%. I read the ESRI report, but I also listened carefully to the ESRI's commentary on the radio this morning. Wages are outpacing prices, although I accept that this is happening from a very challenging position in light of the level of inflation we have experienced and the level of real impact people have experienced with the cost of goods and services over a sustained period. That is why we can debate the budget package, as we often do.

I will go back over that again. I have not disputed that is the case in 2025; I am saying we may end up with it not being the case before the end of the year, because for the past three months, inflation has been outpacing wages. There are warning bells going off all around the place. Inflation stands at 3.2%. It was projected to be 1.8%. The Government delivered a budget. The Tánaiste is the guy who signed off on that and who brought the Finance Bill through this House. The ESRI has been very clear that everybody is worse off. Let me qualify that - developers, bankers and speculators are not worse off. People with extreme wealth are not worse off. The ESRI, looking at its models, said the Government has left families and workers worse off. It is there in black and white. How the Government was able to pull that trick off in a €9.4 billion budget goes beyond me. That budget was based on inflation rates but they are higher in reality than was projected on budget day. I am probably hitting my head against a brick wall here, but the Government really needs to revise this because there are people who are really struggling and it has left them high and dry this Christmas.

The Deputy needs to return to the technical but not unimportant point that it is still the view not just of the Department of Finance but also the CSO that what we are seeing in the inflation rate since September has been the impact of base effects in pushing up the annual rate of inflation. As recently as my engagement yesterday with the Department, as distinct from my political views, the forecasting for the year remains largely in line with what it expects to see at the end of the year and the forecasting for next year remains as it was on budget day. Deputy Doherty will have heard the person who wrote today's ESRI report say of the 1.6% in relation to disposable income that there were protections for lower-income workers. The report specifically talks about the 1.6% relating to medium- and higher-income workers. It also notes that this was without the benefit of wage growth, which is now, on average, outstripping price inflation. In other words, wage growth is now rising faster than prices. The ESRI made the point that this was not factored into the 1.6%.