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Wednesday 6 December 2023 Dublin: 7°C
price pressures

From used cars to a loaf of bread, inflation bites Irish businesses and consumers

Irish used car prices have increased by 40% in the year to the end of June

INFLATION IS BACK and economists are divided about whether it’s just a fleeting issue in the aftermath of the pandemic’s initial march through the global economy or if it’s something more serious and likely to linger.

If you listen to central bankers like Christine Lagarde or her opposite number in the Bank of England Andrew Bailey, it’s the former.

Current price pressures, they say, are transitory and likely to fall away as activity normalises after the pandemic and supply chains are repaired.

If you listen to Republican lawmakers in the US, on the other hand, you’re likely to get a very different story.

But if you’re running an Irish business at the moment, the debate is mostly academic.

Input and transport costs are all rising sharply across a wide range of sectors.

Although the impact on consumers has so far been relatively muted, the Central Statistics Office’s (CSO) Consumer Price Index rose by 1.6% on an annual basis in June, marginally lower than the 1.7% observed in May, which was a two-year high.

Ahead of the release of the July figures next Thursday, a couple of interesting publications from this week have highlighted some of the underlying trends.

Used cars

Published this week for the very first time, DoneDeal’s Used Car Price Index underlines the stresses at play within the Irish and the global economy.

Irish used car prices have increased by 40% in the year from June 2020 to June 2021 and seem to be holding their value better than any time in the recent past, according to the data.

There are a few reasons behind this phenomenon.

Screenshot 2021-08-06 at 15.21.12 DoneDeal DoneDeal

After a boom in new car sales observed in the latter part of the Celtic Tiger years between 2007 and 2009, new car registrations dipped in the aftermath of the crash between 2009 and 2015.

So currently, a relative scarcity of seven to 12-year-old vehicles is helping to buoy the price of used cars.

That’s one reason.

Another is a boom in consumer demand for used cars, spurred by various global supply shocks, which have choked the production of new cars and raised input costs for car companies.

One major issue for automakers has been the global shortage of semiconductors used in microchips and processors. The scarcity is partially caused by freak weather events last winter, which effectively blacked out a number of vital semiconductor production facilities along the Gulf Coast in the United States.

Pandemic-linked hoarding has been another issue as was the Suez Canal blockage in March, which delayed the transport of microchips bound for Europe from Asia.

Imports of used cars from abroad have also fallen because of Brexit, the DoneDeal report highlighted.

According to the analysis, “Imported used car registrations are declining fast from a peak of 110,000 per year in 2019 to about 80,000 in 2020, and – with only 30,000 registered so far in 2021 – this year may see only half the 2019 number of used cars being imported into Ireland.”

All of this has led to longer waiting lists and higher prices for new and used cars, according to DoneDeal. It’s also made used cars more and more attractive for buyers compared to new ones.

With consumers currently on a post-pandemic spending spree, the report concludes that surging demand for used cars may pare back as normal service resumes later in the year and into 2022.

However, it warns that “if supply takes longer to catch up,” price growth may continue and used cars could hold their value for longer.

Food and drink

Separately, a survey of the food and drink industry this week by Ibec group Food Drink Ireland (FDI) has raised the alarm about rising input costs for businesses.

More than 50% of the 27 firms that responded to the survey have seen costs go up by at least 10% on raw materials, energy and packaging.

Some say they have seen hikes above 20%.

Skyrocketing shipping costs — a function of what IKEA called a “global transport crisis” earlier this year — are also up by at least 20%, according to a quarter of respondents.

In a nutshell, containers used to ship goods from Asia to Europe and the US have been in short supply for the best part of a year, thanks to Covid-related public health restrictions in different jurisdictions.

That has slowed down the repatriation of shipping containers, sending up the price of freight: costs that could end up being passed onto consumers.

But that hasn’t really happened yet, CSO data suggests.

According to the June Consumer Price Index, overall food and drink prices fell by 0.3% in the 12 months to the end of June.

Bread was the exception. The price of a loaf rose by an average of 3.2% between June 2020 and June 2021 and 1.1% between May and June of this year alone.

Ireland imports most of its flour from Britain. Since Brexit, these imports have been subject to tariffs and coupled with other Brexit-related delays has increased costs for bakeries.

Published next Thursday, the Consumer Price Index for July should give us a better idea of how persistent these pressures have been over the summer. 

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