The rate of inflation is falling fast. But the level of prices in Ireland remains high by European standards. The latest release from Eurostat shows that prices in the Republic are the second highest in the EU, standing 42 per cent above the average. Measuring the comparative cost of typical spending patterns in different countries is not straightforward, but it is clear that the cost of living in Ireland is stuck at the higher end of the European league.
Untangling why this is the case is not straightforward. Economic growth in Ireland has been stronger than the EU average in recent years, pushing up demand and prices. Ireland’s peripheral location also increases the costs of importing some goods and the relatively small Irish market can limit competition.
In some cases consumers get a raw deal. Consumption taxes like VAT and excise duties are very high by EU standards in some areas, explaining relatively high prices for alcohol and tobacco. It is less easy to explain away higher costs in areas like mobile phones and household appliances.
Ireland’s economy is now a relatively high wage and high cost one. Many can afford higher prices, but their impact hits others hard and leaves those in the middle ground with little to spare. The high price levels go some way to explaining why, despite strong growth, living standards for many remain under pressure.
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There is no one policy measure to address this. But with inflation falling, there is a strong case to focus household supports on permanent welfare measures, helping those struggling to live in high cost Ireland, rather than repeating universal giveaways. And to do what is possible to reduce costs where the State can have an impact, in areas such as childcare, health and public transport. Encouraging competition – and having an active enforcement policy in this area – is also important.
Budget policy, too, must be careful not to fuel inflation. The goal must be to see inflation here lower than elsewhere in the EU – as was the case in 2023 – and thus to move gradually down the price level league.