Analysis: Ireland's high prices are not a recent phenomenon and they've become relatively more expensive than the EU average year after year
The increase in the rate of consumer price inflation since mid-2021 is a serious issue facing households and politicians. However, the level of consumer prices in Ireland has been substantially above the EU average for many years. Eurostat, the EU statistical agency, measures the price level of Household Final Consumption Expenditure each year across the EU. This covers all types of consumer expenditure, including food and beverages, clothing and footwear, energy and housing and health and education.
In 2021, Denmark was in first place, with a price level of 140.3, compared to the EU27 average of 100. Ireland was in second place, slightly below the Danish level at 140.1. This means consumer prices are 40% above the EU average in Ireland and Denmark. Sweden was in fourth place at 127.9, with Finland close behind at 126.3. The Netherlands, Belgium, France and Austria are next, all between 112 and 116. The lowest price levels in the EU are in Bulgaria and Romania, both about 56, and Poland at 60.
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From RTÉ Radio 1's News At One, RTÉ Economics Correspondent Robert Shortt on Eurostat's estimate of a 9.6% rise in the cost of living in Ireland, much higher than had been expected
Ireland's high prices are not a recent phenomenon. Since 2001, the price level in Ireland has been at least 20% above the EU average. Other than during the 2009-2010 recession, the general trend has been for Ireland to become relatively more expensive than the EU average year after year. We were 30% more expensive than the average in 2017, and it took just four more years for our price level to reach 40% more. Although there is some debate on how Eurostat treats the price of housing, it is clear that Ireland has been, and is, an expensive place to live.
The internet and foreign travel have made people more aware that the price level is too high in Ireland, relative to incomes. A 400g tub of a well-known Irish-made nappy cream is for sale at £5.80 in the UK, equivalent to approx. €6.80, versus €11.89 for the same product for sale by the same supermarket chain in Ireland. That represents a 75% price premium.
Own-brand paracetamol is for sale at 29p in UK supermarkets, equivalent to about 35c. Irish supermarkets sell branded paracetamol for at least €1.75. Broadband is available in the UK for £15-20 per month, if you shop around, compared to typically €35 or more here. A cup of coffee in a café in the Algarve can be as little as 65c, compared to at least €2.50 here. Interest rates on mortgages here are consistently among the highest in the EU.
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From RTÉ Radio 1's Morning Ireland, Environmental Economist Dr Tom Gillespie on why the price of used cars is continuing to rise in Ireland
The Eurostat data provides price levels for various categories of goods and services. In most cases, Ireland has particularly high prices for services rather than goods. Clothing and footwear at 99.4 are slightly cheaper than the EU average, while furniture and household appliances are at 103.1. The price level of the food category is 117.4, with the milk, cheese and eggs sub-category at 125.3. The non-alcoholic beverages category, like tea, coffee, etc. is quite high at 137.2.
But it is services where the price levels are particularly far above the EU average. We see housing and energy at 188.5, healthcare at 171.5, transport services at 139 and communication services at 146.5.
Why should we be worried about an excessive price level in Ireland? Ireland is a very open economy, with large investments made here by many multi-national firms, and huge amounts of foreign trade. If prices and costs are too high relative to our productivity and our competitors’ costs, then we will lose our external competitiveness. This could lead to a slowdown in foreign investment and external trade. In a competitive, globalised economy, an elevated price level should be justified by high productivity, high wages and high quality of life.
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From RTÉ Radio 1's Morning Ireland, Peter O'Connell speaks to US tourists in Bunratty about the price of holidays here
Property costs are a significant contribution to excessive prices. Commercial rents for retail shops are very high. Prime retail rents in Dublin in December 2018 were €6,750 per m2, more than triple the rents charged in Edinburgh, Manchester and Leeds. Even Galway city has higher retail rents than Manchester and Birmingham. Commercial leases created before 2010 often contain clauses preventing the rent from falling, even if there is a recession, or the tenant is facing difficulties.
Residential rents in Dublin exceed rents in Paris, Rome and Berlin. The latest rental report from Daft shows rents rising at 10% per annum, with Dublin rents reaching €2,000 per month. The cost of development sites often exceeds €10m per acre. Excessive property costs push up consumer prices.
Medical costs are very high. The fee to visit a GP in France is about €25, compared to €50 or more here. The fee to see a specialist medical consultant is €46 to €60 in France, versus up to €200 for a first visit in Ireland. The HSE paid doctors €60 to administer a two-dose Covid vaccine, while the NHS in the UK paid doctors about €30 euro (£25.16). Eurostat data reports that hospital services are 92% more expensive than the EU average. Even though our expenditure per person on healthcare is high relative to the age profile of our population, we receive less quantity of services, due to the very high prices.
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From RTÉ Radio 1's Morning Ireland, Social Justice Ireland's Colette Bennett on how the rising cost of rent is pushing more people into poverty
Insurance costs are high due to excessive awards by judges and our compensation culture, although Government reforms to personal injury guidelines have helped to reduce motor insurance premiums. Energy and telecom services are expensive, partly due to a lack of competition, although the prices of mobile phone plans have fallen.
Interest rates on mortgages are among the highest in the EU. Due to the very slow repossession regime, banks must hold more capital against mortgage loans, so even with higher interest rates, banks may earn less profit on mortgages here than abroad. Legal fees are high.
Irish consumers tend to be brand loyal, and seem to have a higher willingness-to-pay for many items
Indirect taxes like VAT and excise duty are another cause of high prices, although not significantly. The standard and reduced rates of VAT here are about two to three percent above typical rates in Europe. The excise duty on tobacco is very high, and explains our high prices. Excise duty on beer is similar to the UK, yet a pint of beer is for sale in central Manchester for £2.90, or under €3.50. Other factors explain expensive pints in Dublin pubs, not excise duty.
Although Ireland is on an island, at the end of supply chains, and has a small population of five million, the fact that the prices of goods are not overly excessive suggests that these are not major problems. One final reason is our own fault: Irish consumers tend to be brand loyal, and seem to have a higher willingness-to-pay for many items.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
