What is inflation and how does it impact you?

Inflation is generally described as a decrease in the purchasing power of money so in effect it means you spend more to get the same goods or services. Think of any product you buy regularly, be it a litre of milk or a sliced pan, and if the price increases it takes up more of your money to buy that one item, so inflation has a direct impact on your ability to spend money on other items.

The CSO conducts the official measurement of inflation through the Consumer Price Index (CPI), and this is based on the collection of approximately 50,000 prices each month. In recent years we’ve seen very significant increases with inflation of 7.8% in 2022 and of 6.3% in 2023. As of April 2024, inflation was running at approximately 2.6% on an annual basis, so while inflation has fallen from its heights in previous years, prices are still rising by 2.6%.

While we often look at the percentage year-on-year increase, that can overlook the cumulative effect of inflation over time and anyone who has paid an electricity bill or bought a weekly shop will know that prices are much higher than they were just a few years ago.

For example, one of the many items we track is the price of a white sliced pan and in January 2019 the average price was €1.28, whereas in April 2024 it was €1.64, up 28.1%.

Similarly, for a litre of low fat milk, in January 2019 the average national price was €1.04, whereas in April 2024 it was €1.25, an increase of 20.2%.

When it comes to prices for Electricity, Gas and Other Fuels, these increased by 64.6% in the same period.

From this we can see that inflation is experienced across small and large purchases, but it all adds up.

Each household has its own unique consumption pattern of goods and services and so has its own personal experience of inflation. We’ve worked to give a better insight into the impact of inflation by combining headline inflation figures with results from our Household Budget Survey.

For example, the official measure of inflation showed that prices for consumer goods and services rose by 6.4% from September 2022 to September 2023. However, for households where the dwelling is owned with a mortgage, this group experienced inflation of 7.8% compared with a rate of 5.6% for households that own their home outright, reflecting the impact of increased mortgage interest payments.

The household composition types with the highest estimated inflation rate (6.8%) were households with one adult without children, households containing two adults with more than three children, or households containing three or more adults with children.

There was also a slight difference based on where you live, with the annual inflation rate for urban households being 6.5%, while estimated inflation stood at 6.3% for rural households.

This is an interesting area and for the lowest 10% of households by income, the largest contributors to their experience of inflation were increases in Electricity, Gas & Other Fuels, and Rent. In contrast, for the top 10% of households by income, the increase in Mortgage Interest Payments was the largest contributor to their experience of inflation.  

As part of our publication on Estimated Inflation by Household Characteristics September 2023 (Estimated Inflation by Household Characteristics September 2023 - Central Statistics Office), we looked at price changes for the different household groups for the five years from September 2018 to September 2023. Over that period, overall inflation as measured by the CPI was 19.1% however, the estimated inflation experienced by households for persons aged 65 or over was higher at 19.5% versus an average of 19.1%. Households where the household reference person was aged under 35 had lower estimated inflation at 18.8% versus an average of 19.1%.

When it comes to household income, this can be affected by taxation and social welfare payments. However, looking at wage levels in the period from 2019-2024 from our Earnings and Labour Costs statistical publication (Earnings and Labour Costs Q4 2023 (Final) Q1 2024 (Preliminary Estimates) - Central Statistics Office), we see that in the five years to Q1 2024, average hourly earnings rose by 24%. All sectors saw increases in average hourly earnings over this period however, there were differences between sectors with the largest increase of 38.6% experienced in Information & Communication. In contrast, average hourly earnings in Transportation rose by 5.6% in the period.