The impact of rising inflation - KFM

Image audioImage The impact of rising inflation - KFM

Inflation rates in the Eurozone hit a record 5.1% in January, which was higher than expected. Head of Communications at bonkers.ie, Daragh Cassidy, appeared on KFM to discuss what will happen if the European Central Bank (ECB) decides to raise interest rates as a result of inflation, and the impact rising costs will have on energy bills and mortgage rates.

Listen back to the interview above or read about the main points discussed below.

Inflation on the rise

According to the Central Statistics Office (CSO), the inflation rate in Ireland in December was 5.5%. The good news is that it is forecast to come down slightly next month, based on the new figures today from Eurostat.

The ECB tries to keep inflation at around 2%, so at the moment it’s more than double that. There is talk that the ECB may need to increase interest rates over the coming months to keep inflation under control.

However, we do need to put things into perspective. Interest rates are at record low levels, practically at 0%, and an increase in interest rates is likely to be quite slow and gradual. We likely won’t see a return to more normal interest rates for a long time to come.

What would happen to mortgage rates if there is an increase?

It depends on the type of mortgage you have. If you have a tracker mortgage, you’d almost feel the change immediately. Although, people on tracker mortgages are getting a very good deal at the moment, so they would still be paying far less than other people.

If you’re on a fixed rate, that’s not going to change for the remaining term. If you’re on a variable rate and rates do begin to creep higher, then yes it does mean that mortgage rates are likely to go up.

Having said that, we have very high mortgage interest rates in Ireland. We have the second-highest rate in the Eurozone and our rates are double the Eurozone average. However, mortgage rates have begun to go down slightly over the past 2 or 3 years, partly due to new competition entering the market.

If interest rates only increased by a small amount, maybe the banks would absorb some of it, as interest rates here are so high anyway.

Take a look at this blog to find out more about why mortgage interest rates are so high.

Should consumers be worried about inflation?

With inflation at a near 20-year high, people should be mindful. Everyone’s inflation rate will differ depending on whether they smoke, have a car, are renting, etc. The 5.5.% figure is an average, and less well-off households are likely to be hit harder.

It’s important that people take the time to search for better value, shop more cleverly and reduce the impact of rising prices.

Where we’re really seeing it at the moment is the energy sector. The prices of gas and electricity have hit record highs, and they have never been more expensive in Ireland. Home heating oil has also rocketed in price too. This is where people will really feel the impact.

However, we are beginning to see price increases in other sectors. Broadband, for example, has seen an increase and it was also only the other day that An Post increased the price of stamps. And we’re also seeing food inflation and the price of health insurance go up too.

A lot of people would've been renewing their health insurance last month and would have noticed a bit of an increase, so it’ll be a tough year for consumers.

Inflation might hit a maximum of 6%. If wages don’t keep up, meaning most people will have less money to spend.

Pandemic savings

For much of the last two years, we couldn’t do much travelling or socialising and now that things are beginning to return to normal, we’re seeing prices increase. As a result of being able to do less, consumers have amassed significant savings.

According to the Central Bank of Ireland, there’s around €136 billion on deposit in banks and lending institutions in Ireland at the moment. That’s around €28,000 for every man, woman and child in the country.

Obviously, some people will have far more and some will have far less, but there are a lot of people with savings that they have built it up during the pandemic.

The problem is that as the economy has opened up, people are using their savings to splash out and splurge, which is causing prices to increase.

Review your household bills

One way to combat rising inflation is to review your household bills.

One of the easiest bills to switch is your energy bill and you could end up saving hundreds. 

Despite increasing energy costs, it’s still worthwhile switching and there is still fierce competition among energy suppliers in Ireland. They’re all competing for new customers, so are willing to offer significant discounts for those who switch.

It’s quick and easy to switch and it can all be done online on bonkers.ie using our energy comparison service.

It’s also beneficial to review your other expenses for services like broadband, phone and TV, insurance and banking products. You can compare all of these services right here on bonkers.ie and take control of your bills today.

Check out our blog on how to beat rising inflation to discover more ways you can save this year.

Get in touch

Have you noticed an increase in your household bills? Do you have any other tips on how to combat rising inflation? We’d love to hear from you, so feel free to contact us on FacebookTwitter and Instagram.