The National Competitiveness and Productivity Council (NCPC) has published a report which says the effects of climate change and the ongoing war in Ukraine may hinder the rate at which inflation is expected to slow over coming years.
It observes that while 60% of mortgage holders are currently on fixed rates and are insulated from higher interest rates, these households will face higher rates when their fixed rate periods expire.
The NCPC also observes that the rate of inflation has fallen by a third since its peak of just over 9% last October. It puts this down to falling prices globally and competition between supermarkets here.
It says the key drivers of inflation over the past 12 months have been electricity, gas and mortgage interest.
It also notes that due to the hedging strategies of energy companies, it has "taken time" for falls in the price of energy on wholesale markets to feed through to consumers.
The rate of increase in the cost of mortgage interest has now overtaken energy prices in the composition of the Consumer Price Index.
It notes that core inflation, which strips out volatile energy and food prices, has "remained persistent" and has been above 5% since February.
The NCPC questions whether the future further effects of climate change on food production and prices will alter the calculation of what is considered "temporary" and "core" inflation.
It says a new term "heatflation" has been coined to describe the temporary effect on harvests and food prices of heatwaves and droughts.
This, combined with concerns over grain exports from Ukraine, may it suggests, mean food inflation may be more sustained than previously thought.
It also notes that Ireland is highly exposed to global energy prices and therefore energy price shocks with supplies of gas from the Corrib field declining since 2018.
The NCPC also states that the ongoing shortage of housing, which is maintaining upward pressure on rents, will continue to feed through to inflation.
