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Inflation dictates, consumers adapt amid rising prices

“Adapt or die” is a phrase often credited to Charles Darwin as he studied and wrote about the origin of all species.

Whether he ever actually uttered those words is a matter of debate but the concept they describe is one Darwin spent much of his career demonstrating.

It may be an unusual comparison, but in Ireland this year many people had to keep on adapting to financial pressures not of their making, in order to keep on surviving financially.

Despite Government interventions many people were buffeted by higher costs across a whole range of areas and had little choice but to try and manage through.

That is despite the fact that in 2023 we have seen the rate of inflation dropping more or less continuously from 8.2% in December last year to 3.9% last month.

The rate of general price increases slowed down, but that however, is not the same as prices dropping back and living in Ireland is more expensive at the end of the year than it was at the beginning.

If inflation was the disease, the cure brought some unwelcome side effects.

Throughout the year the European Central Bank continued its determined efforts to rein in inflation using the biggest lever it could pull – interest rate increases.

The European Central Bank

Increase after increase came every month until finally in October, the bank decided to hold at 4%.

Increasing lending costs achieved what was intended which was to slow economic activity and as a result inflation slowed.

For mortgage holders whose lenders passed on the interest increases however, it all brought financial pain.

Monthly payments rose steeply for many adding thousands per year to the cost of their mortgages. So household budgets had to adjust.

That was starkly demonstrated early in December in a study published by the Money Advice and Budgeting Service MABS. The study surveyed service users in Leinster.

“Significant increases in mortgage payments, coupled with the cost of living increases has forced many individuals and families to make very difficult decisions,” said Michelle O’Hara of MABS.

“Three quarters of south Leinster MABS clients have reduced electricity use, home heating use, non-essential spending and grocery spend in order to afford their mortgage,” she added.

A heavy burden to shoulder.

Households also had to adjust to food inflation. As this year ends, the inflation rate for food still sits above 6%, way above the general inflation rate.

It’s the one area, where no one can avoid price increases, as we all have to eat.

Anyone who shops know well that their overall bills have gone up steadily over the last year, even when high profile reductions on specific dairy-based products are included.

All the large supermarkets began to cut milk prices back in April, prices that had risen 24% in the previous 12 months.

In Ennis, Co Clare – just before dairy prices began to turn – I spoke to shoppers about their grocery bills.

One woman on O’Connell Street, just out of the supermarket summed her situation up.

“You might go in this week and you will buy maybe bread, milk, teabags, the usual and then a week later everything has just gone up 5 or 10 cent and everything matters when you do a big shop.”

Another woman stopped to talk and said: “You think you are going to do your normal shop and all of a sudden you are at the till and its at least €20 or €30 more.”

Like overall inflation, food inflation is continuing to moderate. It was over 12% at the end of last year, so it has actually halved this year.

Next year, as drops in energy prices reduce processing and transport costs further, food inflation should drop more.

Record bills for home heating and power were experienced by consumers in 2023, which despite Government help also help placed a heavy burden on households budgets.

However as has been already noted, energy costs have begun to decrease again, with more cuts expected in the New Year.

On the other hand costs in other areas are still rising – including rental costs and private health insurance.

The year also brought some significant Government interventions to help with the cost of living and further interventions are planned.

Energy credits that helped with electricity bills last winter, have begun to be paid again, a suite of once off social welfare payments, rent credits and reductions in public transport costs and third level fees also gave recipients a boost.

The free books initiative introduced for national schools is being extended to the junior cycle at second level.

Wages are also expected to increase.

The minimum wage goes up again in January by €1.40 an hour to €12.40, and public sector wages will also increase.

Most employees in the private sector can also expect a wage boost of nearly 4%, according to employers group Ibec.

Taken in the round 2023 was a difficult year from a cost of living point of view and as it disappears in the rear-view mirror, we can only only hope the road is a little bit easier.

Here’s to the New Year!


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