Inflation once again. What can Gov do about it?

OK - what drives inflation?

1. At the moment, oil prices are up which raised the price of gas, causing consumer prices to rise. Of cause, the cost of wind rose so renewable energy went up as well. [This is nonsense, but it did]. So some profiteering.
2. The input cost of fertilizer shot up because of oil price rise, causing rise in dairy and tillage production costs. This was passed on. Tesco milk went from 75 c to 95 c - why, I do not know, but Tesco have been raising prices on some products by a minimum of 10% and up to 50% or more. Tesco do not tend to raise prices by a little - it is always by a lot. Now, Tesco do sell some products below cost.
3. If the public service gets a pay rise, this has to be paid out of public funds, which are either borrowed or paid for by increased taxes. Interest rates are on the rise, so borrowed money will cost more, which will be paid for from taxes.
4. If all pay rates outside the PS rise then these will be passed on, causing further price rises. This will causes further inflation, and demands for more pay rises, which will spiral. It will take years to bring the inflation back to near zero which we have had for quite a while.

So what can be done?

Well, will people accept a fall in living standards? Perhaps some will, but most will not.

How about higher taxes? Not popular - but inevitable.

How about a recession? That is likely if the above options are ignored, and something that no-one wants.

Basically, solving inflation is like trying to hold back flood waters - unlikely to work for long.

Words and phrases that have gone out of use in the last fifty years: thrift; economise; repair; save up for it; postpone purchase; do without; make and mend; plus quite a few more.

To decide whether it is profiteering, you would need to look at historic profit margins.

In some businesses low margin is typical, but in others, a high margin is normal. Oil is dealt in huge volumes, so it would tend to be low margin, while bespoke businesses like Haute Couture is low volume and high margin.

So what were the margins for oil companies over the last decade?

Well, the constant investment and exploration costs are above the line costs and come out before the profit margin. Again, actual figures are better than 'sound particularly reasonable to me'.

At a time of high inflation, allowing any price rises 'because we can' only prolongs the duration of inflation, and also causes a contraction of economic activity - leading to stagnation - and the dreaded stagflation.

As far as I know, the ESB was a non-profit semi-state enterprise since its foundation.

The EU considered this anti-competitive as it prevented commercial companies that needed a profit from competing with them (what? Surely competing is to reduce costs and enterprises that cannot compete on price just do not try).

As a result of that, ESB had to start making a profit. So to increase competition to reduce prices, the ESB had to increase prices to produce profits (- really? Well that is EU logic).

Once the ESB started reporting profits, the workers said 'We'll have some of that' - so wages climbed and prices rose to where we are now. Even electricity that comes from wind has risen with the cost of gas.

Could not make it up.

Has the Gov got it right with the budget 2023? Can they compensate for inflation without adding to it?

Of course the opposition say we would have done more for everyone, and the Gov must create certainty (how - nothing is certain with Russia going more rogue by the day) - they would say that.

There are always edge cases that are quoted in the media, like the woman with three children with special needs and no public transport and she cannot afford the diesel, etc. etc.

However, there is something there for everybody. Some measures are targeted and some are universal. The carbon tax on fuel has been neutralised by a change in excise, but that money is ringfenced for reducing carbon - so that is a win for the Greens. New tax rate at 30% in next years budget so a win for FG.

All in all - not bad and could have been worse. Even some money reserved for the rainy day fund.

The problem with a 30% rate is that half of those caught by it would be better off if the 40% was moved up by half the 30% band. Those above the 40% are not affected if the 40% band is moved or the 30% rate is introduced.

The 30% rate is needed to reduce the sudden transition from 20% to 40%.

Difficult one and can only be done in a largely give away budget, but not in our inflationary time.

We will know that inflation is here to stay when price rises are explained as 'because of inflation'. Inflation is a curse that has become embedded in our economy, but in recent times has been at a low level - less than 2%. In the 1970s it was at 22%. Controlling inflation is like trying to control the tide.

It is a nonsense.

However, if it was used to fund a Building Control Office for the whole country - to make sure building standards are properly supervised - then it could be justified.

Mica problem should be funded by revisiting the banks that have provided mortgages for these houses, by holding the block supplier liable, by revisiting the insurance companies who covered these buildings at any time, and also the builders who built these houses should carry some liability. The state should only cover the original construction - not the extensions.

Perhaps some of the redress should be by way of low cost loans.