One-off measures to help households and businesses deal with spiralling energy costs may need to be replaced with more permanent measures because prices are set to remain higher even if inflation declines, the banking lobby has said.
The latest SME Market Monitor, published by Banking & Payments Federation Ireland (BPFI), which represents the financial services sector, said the economy has recovered from the initial negative effects of the pandemic. However, it also pointed out that the wholesale price of electricity is now 195 per cent higher than it was in August 2021.
“It is likely that current inflationary pressures through energy price increases will continue in the short term,” BPFI chief executive Brian Hayes said. “Even if the rate of inflation declines, price levels will still be higher in the future; hence one-off measures may need to be replaced in the future with structural measures around energy efficiency both for households and businesses,” he said.
As there is a one year lag between price changes in the wholesale gas and electricity markets and consumer prices, it is “likely that recent increases in wholesale prices will feed into increased energy costs in 2023 both for businesses and consumers”, the group said.
Despite the continued increase in economic activity in 2022 and employment levels reaching their highest levels, the labour market recovery has not been evenly distributed across industries. The two sectors worst affected by the pandemic restrictions — accommodation and food services, and administrative and support services — lost a combined 21,000 jobs between the last quarter of 2019 and the second quarter of 2022.
Businesses, particularly those operating in sectors that rely heavily on energy such as transport and manufacturing, are exposed to further cost pressures with potential reduced demand from households given their higher energy bills over the winter.
“The Irish economy has recovered from the initial negative effects of the pandemic and is operating close to full employment,” BPFI chief executive Brian Hayes said. “However, both consumer and business sentiment in the short term have deteriorated mainly due to significant inflationary pressure that is likely to increase costs further for businesses and reduce real disposable incomes of households.”
He said that Government relief measures may be necessary “so that the economy does not face similar challenges in the years to come given the continued geopolitical uncertainty”.
The report also noted that businesses are increasingly reporting challenges in hiring suitably trained and skilled staff amid falling unemployment and employment at historically high levels.
The job vacancy rate increased to 1.6 per cent at the end of the second quarter compared with 1.1 per cent three years earlier.
