Analysis: increased prices for consumer goods and services have contrasting impacts on different groups of people
Inflation is one of the most talked about economics issues right now as we have experienced several years of significantly changing prices arising from global events like the Covid-19 pandemic and various international conflicts. While there is a tendency to look at the headline inflation number and whether it is going up or down, this can miss the scale of change over time and how increased costs affect different groups of people.
To get a better sense of the impacts of inflation, we spoke to Chris Sibley and Edel Flannery from the Central Statistics Office (CSO) to see what the statistics tell us.
First of all, what is inflation?
Chris Sibley - "Inflation is generally described as a decrease in the purchasing power of money so in effect it means you spend more to get the same goods or services. Think of any product you buy regularly, be it a litre of milk or a sliced pan, and if the price increases it takes up more of your money to buy that one item, so inflation has a direct impact on your ability to spend money on other items."
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From RTÉ Radio 1's News At One in March 2024, RTÉ Consumer Affairs Correspondent Joe Mag Raollaigh reports on how grocery price inflation has fallen for the 10th month in a row
What is happening with inflation right now?
The CSO conducts the official measurement of inflation through the Consumer Price Index (CPI), and this is based on the collection of approximately 50,000 prices each month. In recent years we've seen very significant increases with inflation of 7.8% in 2022 and of 6.3% in 2023. As of April this year, inflation is running at approximately 2.6% on an annual basis, so while inflation has fallen from its heights in previous years, prices are still rising by 2.6%.
What notable changes have we seen in inflation in recent years?
While we often look at the percentage year-on-year increase, that can overlook the cumulative effect of inflation over time and anyone who has paid an electricity bill or bought a weekly shop will know that prices are much higher than they were just a few years ago.
One of the items we track is the price of a white sliced pan. In January 2019 the average price was €1.28, but it was €1.64 in April 2024, up 28.1%. During the same period, the average national price for a litre of low fat milk went form €1.04 to €1.25, an increase of 20.2%. When it comes to prices for electricity, gas and other fuels, these increased by 64.6% in the same period. From this we can see that inflation is experienced across small and large purchases, but it all adds up.
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From RTÉ Archives, Joe O'Brien reports for RTÉ News on the rising cost of bread in 1984
What do we know about how inflation affects certain groups of people?
Edel Flannery - "Each household has its own unique consumption pattern of goods and services and so has its own personal experience of inflation. We’ve worked to give a better insight into the impact of inflation by combining headline inflation figures with results from our Household Budget Survey.
"For example, the official measure of inflation showed that prices for consumer goods and services rose by 6.4% from September 2022 to September 2023. But for households where the dwelling is owned with a mortgage, this group experienced inflation of 7.8% compared with a rate of 5.6% for households that own their home outright, reflecting the impact of increased mortgage interest payments.
"The household composition types with the highest estimated inflation rate (6.8%) were households with one adult without children, households containing two adults with more than three children, or households containing three or more adults with children. There was also a slight difference based on where you live, with the annual inflation rate for urban households being 6.5%, while estimated inflation stood at 6.3% for rural households."
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From RTÉ Radio 1's Morning Ireland in Aug 2023, new survey shows 75% of older people affected by inflation
Is age a factor when it comes to how you experience inflation?
For a recent publication on estimated inflation, we looked at price changes for the different household groups for the five years from September 2018 to September 2023. Over this period, overall inflation as measured by the CPI was 19.1%, but the estimated inflation experienced by households for persons aged 65 or over was higher at 19.5%. Households where the household reference person was aged under 35 had lower estimated inflation at 18.8% versus an average of 19.1%.
Do we have any insight into inflation across levels of income?
For the lowest 10% of households by income, the largest contributors to their experience of inflation were increases in electricity, gas, other fuels and rent. By contrast, for the top 10% of households by income, the increase in mortgage interest payments was the largest contributor to their experience of inflation.
How have earnings tracked inflation?
When it comes to household income, this can be affected by taxation and social welfare payments. Looking at wage levels in the period from 2019-2024 from our Earnings and Labour Costs statistical publication, we see that average hourly earnings rose by 24% in the five years to Q1 2024. All sectors saw increases in average hourly earnings over this period, but the largest increase of 38.6% was experienced in Information & Communication. In contrast, average hourly earnings in Transportation rose by 5.6% in the period.
The CSO publishes a wealth of data on inflation, income and earnings and more information can be found online or on various social channels.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
