Is the cost-of-living crisis over?

It seems that inflation is finally under control.

After almost three years of hefty price rises, inflation is now back below the 2% level that's considered manageable, according to the Central Statistics Office (CSO). 

However falling inflation doesn't mean that prices are falling or that things are getting more affordable. It just means prices are increasing at a slower rate. In others words we're experiencing disinflation as opposed to outright deflation. 

And as our analysis shows, there are many reasons why households may still be feeling the pinch in their pockets.  

What caused inflation?

The war in Ukraine sparked an international energy crisis. And as we use energy to manufacture and produce almost everything, this fed through into higher prices in almost every other sector. 

The lockdowns as a result of Covid also didn't help as they caused huge supply chain disruptions worldwide.

And closer to home, Brexit led to an increase in customs duties and charges on some imports from the UK - one of our biggest trading partners - thereby putting further upward pressure on prices. 

How bad did inflation get?

After several years of muted price growth, inflation in Ireland rose to 2.4% in 2021 and then rocketed to 7.8% in 2022 and 6.3% in 2023 - well above the 2% rate of price growth that's considered manageable. And it even reached a high of over 9% in the summer of 2022.

Such a high level of inflation hadn’t been seen in Ireland in over a generation.  

Between August 2021, when inflation began to take off, and August of this year, when prices finally began to stabilise, general inflation rose by almost 18% in total.   

To put things into context, in the preceding three-year period between August 2018 and August 2021, prices rose by only 2.5% in total.  

Where are we now?

Inflation fell below 2% in August for the first time in over three years. Price growth close to but under 2% is generally considered the optimum level of inflation. 

And in September inflation fell to just 0.7%. Indeed prices actually fell by -0.9% compared to the previous month. However prices were still up marginally compared to the year before. 

But prices remain high. They've plateaued at a high level and even continue to increase in some areas.

Here are seven reasons why you’re still feeling the pinch in your pocket:  

1. Mortgages

Between July 2022 and September 2023 the European Central Bank (ECB) hiked interest rates aggressively from 0% to 4.50% to try to rein in inflation. This left rates at their highest level in decades. 

Although the ECB has now started to cut rates, and will continue to lower them over the coming year, a tracker customer with €200,000 remaining on their loan over 10 or 15 years will still be paying over €300 a month more for their mortgage than they were around three years ago.

For those with variable mortgages, rates didn’t go up nearly as much because the main banks didn’t pass on the full ECB hikes. In general, variable rates only rose by between 0.5% and 1% on average. But they’ve yet to be cut by the main lenders. So this means someone on a variable rate with AIB, Bank of Ireland or PTSB is still paying around €50 to €100 a month more for their mortgage compared to a few years ago.       

2. Energy 

Energy costs more than doubled following the outbreak of war in Ukraine. 

And despite recent moderate falls, electricity prices are still around 70% to 80% above where they were only three years ago while gas prices are still close to double previous levels. 

This means households are still paying around €900 a year more for their energy than they were until recently. 

3. Food 

Grocery prices in Ireland barely rose at all in the decade leading up to the start of the cost-of-living crisis. Indeed food prices were even falling at times. In other words there was outright deflation as opposed to inflation. 

But from mid 2021 onwards food prices slowly began to rise and inflation in the grocery sector reached a high of over 13% in the summer of 2023. 

Over the past three years, food prices have risen by just over 20% in total. This compares to deflation of -2% in the previous three years. And the price of some staple items rose even more. 

For example, a white sliced pan rose by almost 25%.Two litres of full fat milk went up almost 30% as did half a dozen large eggs. A pound of butter rose over 30%. 500 grams of Spaghetti rose over 35%. And a kilogram of onions rose over 40%.

Households are now spending around €20 to €25 extra a week on their food or almost €1,300 a year.

And food and non-alcoholic drink prices are still going up. Just at a slower pace. Inflation in the grocery sector is currently running at around 2% a year. 

4. Health insurance 

Are health insurance premiums ever not rising?

VHI hiked its premiums by an average of 3.5% at the start of October, which comes on the back of a separate 7% hike in March. However these are average price hikes across all VHI policies. Depending on the type of plan someone is on, the increase could be even higher. 

Laya meanwhile is increasing its premiums by an average of 6.5% from October following a 7% hike in April.

Come January, when most policyholders renew their plans, many families could be looking at paying at least €200 a year more for their insurance. 

5. Car insurance 

Despite reforms in recent years at bringing down the cost of personal injury claims, the cost of car insurance has begun to creep up again.

Car insurance premiums are currently rising by over 10% a year, meaning the cost of the average premium is now around €50 to €60 higher than last year.

Insurers blame a big increase in the number of damage claims by motorists as well as more costly repairs for cars damaged in accidents. 

However premiums are still lower than they were in 2020. 

6. The ‘fun’ stuff

Keeping ourselves and the kids entertained has also increased significantly.  

Streaming services like Spotify, Disney+, YouTube Premium, and Netflix have all gone up in price significantly over the past few years and continue to increase.  

Disney+ has increased its price from €10.99 to €13.99 a month. Spotify just went up by another €1 to €2 a month depending on the plan, while a family YouTube Premium plan has gone up from €17.99 to €25.99 a month - a 44% increase!    

A family with all three subscriptions will be paying €156 more a year.

Recreational and sporting activities, and after-school activities, are also continuing to increase by 5% to 6% a year. 

7. Shrinkflation

Shrinkflation is when a product shrinks in size but remains the same price.

Over the past few years it's become an increasingly popular strategy employed by manufacturers to protect their profit margins while not looking like they've increased their prices. But for the consumer it's really just another price hike - and a sneaky one at that. 

It's been a big issue in the grocery sector in particular. Indeed in France, under a new law, supermarkets are now obliged to alert shoppers when shrinkflation has taken place by placing a sign by the product for two months after the item has changed in size. Perhaps something for the Irish Government to consider?    

Either way, shrinkflation is another reason many households are still struggling financially. As even though prices seem to have stopped rising rapidly, they're left paying far more for less in many cases.  

So is the cost of living crisis over? 

The inflation crisis appears to be over - barring another energy crisis or a further escalation of the war in Ukraine and the Middle East.  

However the cost-of-living crisis isn’t over just yet. 

Prices rose considerably in Ireland over the past three years. And although wages also grew, they didn’t grow fast enough to match the big increase in inflation. Hence the pressure some households have felt in their pockets. Particularly lower income households which spend a disproportionate amount of their money on food and energy, which both increased above the rate of general inflation. 

But with inflation now largely under control and wages still growing, the outlook is better.  

However it will probably take another two or three years of muted price growth along with moderate wage growth for households to recoup the loss in purchasing power that they’ve experienced over the past three years.

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