Inflation once again. What can Gov do about it?

Sam Russell

Inflation is rearing its nasty head again after a decade of very low inflation, and it is reported to be overtaking housing as the number one concern in the polls.

So what can be done about it?

Inflation in this case is mainly coming from the huge rise in energy prices - caused by deliberate reductions in production of oil and gas, followed by the Ukraine war. This is imported inflation and there is little, long term, that can be done as it is totally out of the control of our Gov. The most that can be done is minor mitigation as any sharing the burden by reducing taxation can only go so far as the revenue has to be replaced or borrowed, and again that can only go so far as shifting the revenue will also be inflationary.

Now, inflation of the 10% and above will cause recession, which will not combat the inflation - only make it worse. Recession will cause unemployment, which will increase spending on social welfare, and those on welfare will no longer be paying employment taxes.

What follows then is prices chasing inflation, and, worse, prices anticipating inflation.

Customer - 'Why is the price going up?' Seller - 'It is because of inflation!'

No, inflation is the price going up - it is not a cause. Inward prices could be a cause, but does the margin need to be maintained? The way to tackle it is to keep people in employment, narrow margins, and seek lower cost alternative supplies - like local producers, or lower cost alternatives, or just do without.

I do not have the answers (obviously), but we do need answers. Previous economic problems have been solved by emigration, but we now have significant immigration so that safety valve is not there anymore.

L1011

Suspend alcohol MUP, as it is something entirely domestic which is driving inflation:

https://www.independent.ie/irish-news/alcohol-price-hikes-are-helping-to-pump-up-the-rate-of-inflation-41515261.html

Won't have a major impact, but as so many contract prices are set to rise by CPI or CPI+, every other input in to raising the CPI causes prices rises elsewhere.

Sam Russell

https://www.boards.ie/discussion/comment/118873705#Comment_118873705

Well, yes, but MUP is only stopping loss leader pricing. Last year, before Christmas, I purchased Jameson whiskey at €15 a 70cl bottle, and Guinness 535 ml can at 75c per can. Now MUP brings those up to approx. €25 a bottle, and €1.65 per can . Normal prices per unit would be close to these prices if special offers were not included. 0% alcohol Guinness is still €1.50 a can and is not governed by MUP.

Selling vegetables at silly low prices has caused many Irish producers to close businesses and will result in higher costs and lower quality as those products are imported from Spain and other countries at much higher prices and longer supply lines. It is time for the supermarkets to be controlled by some regulator as they control about 90% of the market between 5 suppliers, and all are very profitable. That is the basis for uncompetitive market conditions to flourish.

The CPI statistic is only designed to pump up inflation 'because of inflation'. For example, tolls on our motorways are governed by this, but funding for motorways (PPP) is basically capital funding and is related to interest rates which are currently at historic lows, not CPI, and should not be automatically raised in sympathy with the CPI. This is the best example of inflation chasing inflation.

We need to think this out a bit more.

L1011

MUP is far higher than stopping loss leaders, and that alone could have been done much easier. Martin removed the ban on loss leaders when minister.

Brussels Sprout

It's a tough one OP. The sources of inflation are external (energy and supply chain issues) and also the typical tool that central banks use to control inflation is also external (Interest rates - controlled by the ECB). The government can try and reduce prices by reducing certain taxes but there is no guarantee that those will actually get passed on the customers. Even if they are, there is also a danger that by leaving more money in the economy, in this manner, that this can possibly cause even more inflation.

As an explainer of that last point: To take an extreme example - imagine if the government got rid of all taxes overnight. Any goods or services that are in any way scarce in the economy would immediately shoot up in the price (I'm thinking rents and house prices) as suddenly everyone competing for them has more disposable income to push up their prices.

Aside: I have noticed that whenever someone asks this question on a forum the answers are pretty much always "Get rid of that specific tax that I personally dislike".

Sam Russell

https://www.boards.ie/discussion/comment/118873849#Comment_118873849

What proportion of spending is alcohol?

Rent is the biggest problem, and that could be combated by freezing rents and banning evictions for those that pay the rent (and comply with social behaviour). It is ridiculous that landlords have huge constitutional rights but renters do not, and can be thrown out on the street for any reason the landlord dreams up.

External inflation rapidly gets imported into local inflation because inflation begets inflation.

greenfield21

The main cause of the inflation is government spending with Ukraine added on top now.

We've been irresponsible with money for far too long now and this is the result.

Blaming Russia is silly. Inflation was already high anyways.

Viscount Aggro

Public sector pay freeze is needed. The unions are first to the trough to negotiate pay increases.

This will cause a wage / price spiral.

History Queen

https://www.boards.ie/discussion/comment/118874270#Comment_118874270

I'm a teacher so obviously a vested interest here. Is the logic not that increased wages means more spending power which means more money circulating in the economy? I'll happily not take a wage increase if it'll help lower the cost of living.

Traditionally what are the best ways fora government to curb inflation?

Manach

As it is usually a government that is at fault for its inflationary economic polices, so then getting them to fix it is can be somewhat ironic. The last major inflationnary event occurred in the 1970s. We are, unfortunately to this conservative, a vastly different society in terms of expectations and being non-longer enjoying the same degree of social cohesion. From what I read of accounts of how states handled inflation (eg France in the late 1940s as per the book Paris by Cooper) very painful spending decisions have to be made that the state which might come as a shock to the populace at large. Otherwise the secondary effects of mass strikes and shortages will provide a negative feedback loop. For example, see Sri Lanka over the past few weeks.

Sam Russell

https://www.boards.ie/discussion/comment/118874299#Comment_118874299

Obviously not a student of economics. More money in circulation causes inflation - more money chasing fewer goods.

In the 1970s, Ireland had inflation in excess of 20%, and price controls did not work. Pay freezes did not work. Strikes did not work. Borrowing did not work - all of income tax was used to pay the interest on the Gov borrowings. It took until the 1990s before we got out of that situation.

Interest rates rise to reduce inflation, but we do not control that.

Growth is the only solution open to us - but genuine growth that increases the wealth of the nation, not the multi-national corporation growth antics that play with transfer cost numbers to reduce their tax bills.

History Queen

https://www.boards.ie/discussion/comment/118874433#Comment_118874433

Oh I'll happily admit that my knowledge of economics is extremely limited. Didn't Reagan have some success at curbing inflation with a combination of severly reducing public spending and reducing taxes, amongst other measures (I think there was some stimulus for private business/enterprise)?

Geuze

https://www.boards.ie/discussion/comment/118874299#Comment_118874299

Typical way to reduce inflation is to raise interest rates, to cause an overheating economy to cool down.

The problem today is that the inflation is mostly cost-pus inflation, caused by problems on the supply-side, rather than demand-pull inflation, caused by a strong economy.

Geuze

https://www.boards.ie/discussion/comment/118874270#Comment_118874270

Current PS pay deal:

2021 = 1% rise

2022 = 1% rise

In the PS, real wages are falling.

Sam Russell

https://www.boards.ie/discussion/comment/118876240#Comment_118876240

Reagonomics (Reagan's idea of economics - he was suffering from dementia) was to give tax cuts to the very wealthy - republican billionaires - and this extra wealth would trickle down to the poor as a result in increased spending by the billionaires. It only benefited the billionaires as they are billionaires because they do not spend their money.

This current inflation is caused by energy price increases on the international markets that can only be countered on an international move to counter this. Giving domestic pay rises and other domestic mitigation will only import this inflation into the domestic economy that will be very hard to eradicate. It will take decades to eradicate if it takes hold.

I do not know the best response - our politicians have not been great in the past.

combat14

https://www.boards.ie/discussion/comment/118874270#Comment_118874270

so ordinary workers are supposed to take a 8.5% pay cut in real terms - pull the other one

Viscount Aggro

They are not taking a paycut.

Its simply a lowering of living standards.

beggars_bush

make it worthwhile to go out and work.

reduce tax bands and USC. increase the actual take home pay.

so many people in construction, hospitality crying out for staff and they cannot get people to work.

babyducklings1

https://www.boards.ie/discussion/comment/118885914#Comment_118885914

Exactly this and maybe more as well. If people don’t feel it’s worth their while going out to work they won’t plus loss of benefits like medical card for example.Why not instead give all workers a few go visits per year so they don’t have this fear of being stripped of their medical card.

Over heard someone recently talking about not wanting certain hours in employment as they’d lose their medical card.

murpho999

https://www.boards.ie/discussion/comment/118874208#Comment_118874208

I really don't think you know what inflation is.

murpho999

https://www.boards.ie/discussion/comment/118885914#Comment_118885914

Those measures will probably increase inflation.

There's not a lot the government can do except provide financial support and/or reduce VAT.

Widdensushi

Get rid of the carbon tax is the easiest and most effective measure, instead of that they are increasing it.

Brussels Sprout

https://www.boards.ie/discussion/comment/118888406#Comment_118888406

Do you have a reference for that claim?

Widdensushi

https://www.boards.ie/discussion/comment/118889113#Comment_118889113

For which? That increasing fuel prices are driving inflation? Do you disagree with that statement? Or that increasing carbon taxes on fuel are helping driving up the prices? Surely both are self explanatory.

Widdensushi

https://www.boards.ie/discussion/comment/118889113#Comment_118889113

https://selectra.ie/energy/guides/billing/carbon-tax

Brussels Sprout

https://www.boards.ie/discussion/comment/118889152#Comment_118889152

That it's the "easiest and most effective measure" to combat inflation.

Why not any of the other taxes that the government levies?

Starfire20

https://www.boards.ie/discussion/comment/118885914#Comment_118885914

less of a case of can't get people to work and more of a case of can't get people to work for crap wages.

raising wages will no doubt entice people into these jobs but that would mean less profit for the bosses and we can't have that now can we

Widdensushi

https://www.boards.ie/discussion/comment/118889226#Comment_118889226

Have you a reference for the reason why the newest and currently increasing tax removal would not be the easiest, most effective measure? Your own opinion would be welcome rather than looking for others to post opinions that aren't their own.

CrookedJack

https://www.boards.ie/discussion/comment/118891768#Comment_118891768

Ha, that's brilliant "Can you prove that the thing I can't prove is true, is not true". Some man.

Widdensushi

https://www.boards.ie/discussion/comment/118891877#Comment_118891877

Can you give your opinion/alternative please.. rather than a pointless post, thanks.

Jim2007

https://www.boards.ie/discussion/comment/118874270#Comment_118874270

If you’re going to freeze wages in order to keep inflation down, then you start with industrial wages not the public service since it has the most immediate impact on prices…. A public sector freeze might allow you maintain the current tax rates and budget, but it won’t stop prices rising like a freeze on industrial wages will. It’s also one of the few economic variables that the government could actually control.

Jim2007

https://www.boards.ie/discussion/comment/118889410#Comment_118889410

But in the real world the costs get passed on to you, the management still get their bonus and the company continues to make money.

growleaves

https://www.boards.ie/discussion/comment/118891985#Comment_118891985

How does the government freeze industrial wages? What's involved?

Jim2007

https://www.boards.ie/discussion/comment/118888406#Comment_118888406

Nonsense it’s removal would not even be noticed a month later the way things are going. Just another opportunity for someone’s hobby horse.

Widdensushi

https://www.boards.ie/discussion/comment/118892007#Comment_118892007

Solutions not problems please, just putting it out there as imo it was obvious,maybe too obvious, what do you suggest?

.

Brussels Sprout

https://www.boards.ie/discussion/comment/118891768#Comment_118891768

You made the initial statement without backing it up with any evidence.

I asked for evidence of your statement.

You are now trying to put the onus on me to refute your statement?

Yeah..no that's not the way it works.

Sam Russell

SF are all the time offering advice to the Gov to 'do more' to combat every wrong in society, currently its inflation - that is spend more on the 'poor', 'the disadvantaged', 'the working poor', the 'squeezed middle', 'rural Ireland' - everyone except the millionaires they intend to squeeze of all the millions by huge tax levies. [They do not want to admit that we do not have a large number of wealthy people that would be able to fund their spending plans.]

How does handing out Gov funding to every group in society help reduce inflation? All it will do is to feed inflation, or increase our already unmanageable public debt.

Why are they not called out on this by the media?

Brussels Sprout

There is a precedent for Ireland electing a government who ran on a purely populist platform at a time of global inflation rooted in soaring energy prices.

In 1977 Jack Lynch's FF won an overall majority (the last time this happened) on a platform that included getting rid of car and property tax. This erosion of the tax base sowed the seeds of the recessions and massive inflation that blighted the 1980s.

Sam Russell

The massive inflation was already well seated in the economy by the time of the 1977 election. I think inflation touched 20% prior to that election, but it did make populist promises very popular with the electorate, I would imagine.

https://www.macrotrends.net/countries/IRL/ireland/inflation-rate-cpi

Wanderer78

https://www.boards.ie/discussion/comment/118925686#Comment_118925686

oh ffs, this again! growing public debt is generally far safer to have than not to have, we have sufficient evidence of this globally, 08 being the most significant evidence of this, i.e. over reliance on the private sector money supply, i.e. the credit supply, is simply too dangerous, but its critical this new money, i.e. new debt, is used to help provided us with our critical needs, and not used to simply inflate asset prices such as property, as is generally the case with the credit supply and other public forms of money creation, qe etc......

https://www.boards.ie/discussion/comment/118926124#Comment_118926124

We're 240bn in debt already. When do we start seeing the supposed outcomes of your theory?

How do you propose to stop property inflation? Start a cull of the population?

Sam Russell

If the new public debt is for capital expenditure and then there is a return from that investment - for example Metrolink - then that is a laudable use of debt. In low interest time - as now - it is doubly so, plus as we move to high inflationary times, it is triply so. We could get cheap EU money, but no, we are going down the PPP route. [Public money into Private Pockets - the Public takes the risks, but the Privateers take the Profits].

What is bad, is increasing public debt for day to day expenditure, like paying increases to social welfare. What is worse, is to do it at a time of rising interest rates, where that debt will attract ever increasing interest charges that can (and did in the past) take up all the income tax raised. If we get to that position, it will not just be the poor that suffer.

As a country, we have an appalling history of infrastructure development together with spending two or three times as much for it as other nations do. We also have spent huge amounts of public money NOT building public infrastructure, but paying huge amounts for plans, designs, studies, etc. etc.

Since the foundation of the state, we have removed one of the best tram systems from Dublin, replaced it with a poor substitute of a Dart and commuter rail system. The extensive rail system that existed in Ireland has been largely dismantled and must now be rebuilt.

I suppose infrastructure is not our thing.

Sam Russell

Inflation is climbing the political agenda.

What can he Gov do without making the situation worse?

Covid caused the magic money tree to be given a good shake with the intention of keeping businesses in business, and keeping the hospitals open.

Can the same trick work again?

https://www.boards.ie/discussion/comment/118927287#Comment_118927287

That's crazy. I just checked and Ireland has the sixth highest debt per capita in the world.

Gant21

https://www.boards.ie/discussion/comment/119215181#Comment_119215181

That’s from all the vagabonds.

roosterman71

https://www.boards.ie/discussion/comment/118876783#Comment_118876783

Some levels in the PS are going back to 35hrs/week from the current 37.5 in July. Doesn't mean more money in the pocket but does result in a "pay rise" of sorts

Sam Russell

https://www.boards.ie/discussion/comment/119233732#Comment_119233732

Which grades are going back to 35 hrs per week?

roosterman71

https://www.boards.ie/discussion/comment/119233952#Comment_119233952

Don't know to be honest. Was told by a relation working in the HSE yesterday that her 37.5 hour week was finishing soon and they were going back to 35. She's admin in the HSE and not frontline/medical. Some payroll gig she's in

AbusesToilets

How much of this inflation is artificial, in order to increase profit margins. Oil companies making record profits, rental companies making record profits, yet it's wages that are driving inflation? Give over like.