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price rises Householders warned to hunker down as inflation heads for Celtic Tiger highs of over 5 per cent

Tánaiste Leo Varadkar warns interest rates likely to rise in 2022 as well

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Householders are being warned to hunker down for months of painful price rises and soaring energy costs that could last well into next year.

Despite inflation heading for Celtic Tiger-era highs of over 5pc, the Government has said it will not tweak the Budget package.

A raft of increases in energy bills, including a hike yesterday by SSE Airtricity, has pushed up annual costs for households by as much as €500.

Tánaiste Leo Varadkar said he anticipates the rising rate of inflation will peak and fall again sometime next year.

But at European level, some analysts believe it will take the whole of 2022 for the slew of bottlenecks and supply chain issues to be resolved.

It means energy costs are expected to rise with pressure on prices of food and other goods due to fuel prices and other overheads.

However Mr Varadkar said there would not be “any substantial departure from the Budget package” despite high inflation.

“We don’t want to change that. We need to get the public finances back in order and for next year,” he said.

“It’s our intention only to be borrowing to invest for new houses, new hospitals, new schools, broadband, and things like that. Actually borrowing money at a time when interest rates are about to go up in order to do other things wouldn’t be a good long-term strategy.”

Speaking at the opening of a new food production hub in Ballybay, Co Monaghan, he said inflation was an “inevitability” given the energy crisis and central banks around the world printing money.

“What we anticipate, but we’re not certain about, is that inflation will peak and fall at some point next year because it’s driven largely by two factors. One is the energy crisis essentially, which is international in origin. And central banks around the world have printed about nine trillion euro between zero per cent interest rates and quantitative easing. There’s a lot more money that has been printed around the world, and when you print a lot of money, things you can’t print go up in price, and there’s a certain inevitability around that.”

SSE Airtricity announced its third price hike this year, adding €300 to customers’ annual electricity bills and €200 for gas, according to price comparison site bonkers.ie.

The EU’s statistics agency, Eurostat, said yesterday that Ireland could see 5.1pc inflation in October, compared to October 2020, following a 3.8pc rise in September.

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That’s well above the 4.1pc average for the 19-member eurozone. The last time Irish prices rose beyond 5pc was in April 2002. Energy prices are behind the headline figure, Eurostat said, rising by 23pc this month. That is having a knock-on effect on the cost of transport, which, coupled with a worldwide shortage of shipping containers and a post-Covid surge in demand, is pushing up the price of consumer goods.

Food prices have held steady so far, although the most recent Consumer Price Index showed a 4.4pc rise in the cost of bread, which some economists have warned could be a sign of things to come.

However, the price rises are coming on the back of a drop last year, said economist Hazel Ahern-Flynn, of Ibec.

“The expectation is that would begin to moderate in the medium term. But it’s a little bit unpredictable,” she said.

This week the European Central Bank held firm on its prediction that inflation would start to drop back next year and said it would keep ultra-low interest rates in place, advising markets to be “patient”. But Mr Varadkar said the country should prepare for interest rates to rise in future – which would make it more expensive for the Government to borrow.

“What you’re going to see, I believe, next year, is the central banks are starting to pull back on (printing money) and not in Europe but certainly in other parts of the world interest rates starting to rise,” he said.

“Because while inflation can come under control, the euro at very low interest rates, both for people and businesses and governments, is probably coming to an end and we need to prepare for that too.”

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