It is just over two years since the “cost-of-living crisis” phrase started making regular appearances on these pages and since then consumers have been paying a very high price for almost everything.
But there has been a shift in recent weeks and things seem to be getting better or at least not getting worse.
Figures released by the Central Statistics Office (CSO) last week put the general rate of inflation at 3.9 per cent, the lowest it has been in more than two years. By contrast, it was running at 9.2 per cent just over a year ago.
The decline reflects a general easing of price pressures due to falling energy prices and 10 interest rate hikes from the European Central Bank (ECB).
But are we out of the woods or just in a clearing?
Supermarket prices
Damian O’Reilly is a retail expert and TU Dublin academic and, while he is confident inflation has stabilised, he does not believe prices will return to levels last seen in pre-crisis times.
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He says input costs have fallen and “barring some other disaster that sees the price of oil going significantly up again, there should be some stability”.
There is a long lead-in time from food to fork so producers know the input costs for products that will find their way to supermarket shelves next summer.
“Today’s costs give us a good idea of what the prices should be in the supermarkets six months from now,” O’Reilly says.
“Grocery retail is a very competitive environment and everyone is looking for market share so I can see some prices falling particularly when it comes to private-label products.”
More broadly, he anticipates grocery inflation will be in line with the general rates being recorded by the CSO. “Inflation of around 3 per cent is what I would expect for the next six months,” he says.
But that will still leave consumers paying around 20 per cent more for food next year than in 2020.
Energy
There might be better news when it comes to electricity and gas prices.
Since the start of the crisis, the cost of heating and lighting has gone through the roof with most annual bills doubling from an average of about €2,000 to over €4,000.
Last September energy providers introduced price cuts of between 10 and 30 per cent and a fresh round of price decreases are anticipated in the days ahead.
Brendan Halpin of energy switching company weswitchu.ie is cautiously optimistic about what 2024 might have in store.
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“Not only did household bills double, discounts to switchers went from 40 per cent to less than 10 per cent so many were hit on the double,” he says.
“But there will be price cuts announced possibly before Christmas with standard rates set to come down from February 1st. The discounts are back up too and are now as much as 20 per cent. They are not back to where they were pre-crisis but we’re getting there,” he says.
Daragh Cassidy of bonkers.ie says that if wholesale prices remain stable he would expect another price decrease of about 10-15 per cent in the latter half of next year.
“This means by the end of 2024 we might see energy prices around 30 per cent to 35 per cent below where they were at the height of the energy crisis. However this would still leave prices around 50 per cent above where they were in early 2020.”
Fuel
According to AA Ireland there has been a significant drop in petrol and diesel prices over the last month. Petrol is down from €1.80 per litre in November to €1.72. Diesel has fallen slightly more by 9 cent per litre, from €1.81 to €1.72.
“This is the third month in a row that prices have dropped at the pumps,” the AA’s Blake Boland says before adding a note of caution.
“Things are still far from certain on where fuel prices are going in the coming months. The situation in the Middle East is still unstable, and we’re yet to see if Europe will experience a cold snap that could drive up demand.”
Home loans
The cost of mortgages has soared as a result of 10 interest rate hikes from the ECB but inflation is easing and markets suggest we are at a rate-hike cycle peak. That does not, however, mean Irish borrowers can breathe easy.
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The average tracker customer is worse off by about €3,000 a year thanks to the ECB hikes and many thousands of other borrowers have yet to feel the financial pain coming their way.
Mark Coan of financial advisers moneysherpa.ie believes things won’t get better any time soon. Rates might fall slightly next year before settling at 3.25 per cent “some time in 2025″.
ECB rate increases directly impact only the 24 per cent of mortgage holders on trackers, he says. The average variable rate is 4 per cent but he warns it could hit 6 per cent as lenders put through “catch up” increases to cover their increased funding costs.
“Even if inflation comes down, the price increases we have seen are now baked-in,” he says.
Martina Hennessy of doddl.ie notes there are over 50,000 mortgage holders rolling off short-term fixed rates in the next three years who “will see their rates almost double overnight”.
“We are a nation of short-term, fixed-rate mortgage holders due to the pricing and despite availability of long-term, fixed-rate options. This leaves us more exposed to interest-rate fluctuations than our European counterparts” and for “the majority of mortgage holders, rates will remain at current levels into the medium term”, she says.
“Tracker customers have undoubtedly been hit worst by the rise in interest rates,” agrees Cassidy.
But he says perspective is needed. “Tracker customers had a good run for many, many years. And in the recent budget, the Government gave them mortgage interest relief of up to €1,250. Despite the big hike in rates, many tracker customers’ repayments will not be that much higher than the average new first-time buyer.”
While variable-rate customers have also seen rates creep up, the climb has been small with the “exception to all of this people whose loans were sold to so-called vulture funds. Some have seen their rates go as high as 8 per cent or 9 per cent and many of these so-called mortgage prisoners will be struggling badly”, he continues.
He believes we have “finally seen the end of rate hikes [and] the question now turns to when the ECB might start to cut rates. And by how much.”
He says that while markets suggest the ECB will cut rates from March or April “due to plummeting inflation and a flagging euro-zone economy”, he thinks it will be later than that.
He says while the “worst of the inflation crisis appears to be behind us” that does not mean the cost-of-living crisis is over. “Inflation is easing significantly, and prices are finally stabilising, but at a high level. Gas and electricity prices, despite recent drops, are still around double normal levels. And food prices are around 20 per cent higher than they were two years ago. But the outlook for next year looks a lot more benign than in recent years – barring another shock of some sort of course.”
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