Is the cost-of-living crisis over? According to the head of Ibec, it never happened

For Ibec’s Danny McCoy, the cost-of-living crisis is not only over, it never actually happened. At least not to the extent that was reported.
His problem is not so much with the cost-of-living bit – he acknowledges prices across the board have increased – but with the use of the term “crisis”.
“There’s no denying the cost of living has gone up but that’s only an issue if your income hasn’t gone up simultaneously,” the head of the State’s main business lobby group says.
Take workers on the minimum wage, he says, they’ve seen their income increase by 7.6 per cent in 2023 and 12.4 per cent this year. “That’s cumulatively 20 per cent. Prices haven’t gone up 20 per cent,” McCoy says.
He makes a similar point about welfare recipients and welfare rates, which have risen faster than prices, 4-6 per cent on average in each of the last three budgets.
“How can you describe that as a crisis,” he says.
Outside of these Government-controlled incomes, McCoy points to the double-digit growth in income tax returns flowing into the exchequer, which, he says, can’t be fully explained by rising levels of employment and must, at least in part, reflect a general uplift in incomes.
According to the Central Statistics Office (CSO), wages (as measured by average weekly earnings) rose at an annual rate of 5.6 per cent in second quarter of this year while headline inflation was clocked at 2 per cent, down from a high of 9.3 per cent in late 2022.
McCoy also points to €158 billion held by Irish households in overnight deposit accounts (instant-access accounts making little or no interest).
On average that works out at about €80,000 per household. He’s mindful averages can be misleading but insists the headline number can’t be totally down to a small bloc of rich people skewing the numbers. “How can that be called a crisis for the average citizen?” he asks.
“I’m not saying there aren’t people in financial distress in Ireland, of course there are,” he continues, but he says a lot are merely keeping up with the Joneses in saying “that’s us too when it’s not true”.
At the same time as the supposed cost-of-living crisis, McCoy notes we’re having conversations about capacity constraints at Dublin Airport, which he says is not being driven by inbound tourism or business travel but by Irish households “going on their second, third, fourth, fifth trip abroad”.
“That’s not a cost-of-living crisis. They’re not going down to Portugal to save on their heating bills,” he says. McCoy’s controversial thesis is bound to grind with some.
“I’m not in denial about it … I think there was a year when energy costs went up because of the Ukraine war and when inflation was greater than the increase in incomes and where real living standards fell, but every year since people’s incomes are higher than prices, which means their standard of living is actually rising,” he says.
“I’m not denying the cost of living has gone up substantially … I just don’t see the evidence for the use of the term ‘crisis’,” he says.
McCoy suggests the real crisis might be for SMEs trying to pay higher wages, the main compensatory channel for workers facing higher prices. “Putting the minimum wage up by 20 per cent in two years … hard to call that a crisis for the receivers but for the payers of it, it could potentially be a crisis,” he says.
“Ironically the crisis might be in another place altogether from the one we’re dealing with,” he says, referencing the recent spate of business closures, particularly in hospitality, which typically has the highest percentage of minimum wage workers.
After almost three years of hefty price hikes, headline inflation in Ireland is back under 2 per cent, the European Central Bank’s (ECB) target rate and a rate that economists, for several reasons, consider optimal.
It was just 0.7 per cent in October according to the CSO’s consumer price index, the State’s official measure of inflation, against a euro-area average of 2 per cent.
However, falling inflation, known as disinflation, doesn’t mean that prices are falling (deflation). Having inflation under control doesn’t mean that things are getting more affordable and certainly not in Ireland’s extraordinarily high-price culture.
Economist Austin Hughes, who compiles the consumer sentiment survey on behalf the Irish League of Credit Unions, takes an entirely different view from McCoy, suggesting the recent period has fractured the finances of many households. And to McCoy’s point about whether it constitutes a crisis, he says “if 10 per cent of houses in Ireland were flooded, would that not be a crisis?”
“A crisis is when you have a sudden and sharp change in circumstances and that’s what we’ve had over the last while,” he says.
The latest figures for household disposable income show that since the second quarter of 2021, when cost-of-living pressures started to build, it has still increased in “real” or inflation-adjusted terms by 4.4 per cent, an encouraging result. However, population growth and the number of households have grown even faster. So, the average household has seen a drop in its disposable income, in real terms, of about 5 per cent.
He acknowledges that income tax receipts have increased markedly in recent years, reflecting both buoyant job growth and an increase in higher-paying jobs. “Positive though this may be, it doesn’t automatically trickle down to the average worker,” he says, noting that CSO figures based on administrative data from Revenue show that median annual earnings of employees increased a cumulative 6.5 per cent between 2020 and 2023 while the cumulative increase in consumer prices over the same period was 17.3 per cent.
Despite citing these figures, Hughes says there is a central problem in economics about using average or median figures. “The idea that there is a ‘representative’ Irish consumer whose experience is mirrored across all households is not challenged enough,” he says.
“If you’re on the minimum wage, your household spending is not the same as the average consumer. The amount you spend on food, heating, rent is altogether greater so your cost-of-living has increased more significantly,” he says.
The CSO’s household budget survey for 2022/23 shows that weekly spend by those in the top 20 per cent of households was four times that of those in the bottom 20 per cent (€1,757 v €444), suggesting “altogether different capacities to cope with a cost-of-living shock,” Hughes says.
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The survey indicates that 51.4 per cent of the outlays of households in the bottom 20 per cent went on food, fuel, light and housing compared with 35.5 per cent of the outlays of households in the top 20 per cent.
“Consequently, poorer households have notably higher-than-average inflation in recent years. In contrast, higher-income households may have more scope for life’s little luxuries,” he says.
“You have a situation where roughly [a] quarter of a million people here are preoccupied with the cost of Oasis tickets while another quarter of million are behind on their electricity bill,” Hughes says.
Regardless of where you stand on the cost-of-living crisis, the narrative is baked into the political discourse not just here but internationally. Inflation, alongside immigration, appeared to be a key rallying point for Donald Trump in the recent US election.
Successive budgets here have been framed around cost-of-living packages, with electricity credits, rent reliefs, double childcare payments designed to bolster the finances of low-income households.
Might these measures have shored up the Coalition’s electoral position? We’ll find out soon enough.
As part of the Economic and Social Research Institute’s appraisal of Budget 2025, the think tank’s Claire Keane said it was important to note that poverty rates would have increased “really, really substantially” without those interventions in the budget.
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She also cautioned that the Government was going to have to be careful as it begins to wind down certain temporary measures such as the energy credits scheme because of the uneven impact it will have on the incomes of certain at-risk cohorts.
If the inflation shock has been tamed, economies and households are still dealing with the policy consequences in the form of higher interest rates.
Since the 2008 financial crisis and the subsequent period of historically low interest rates, more homebuyers have opted for fixed-rate mortgage contracts, effectively shielding themselves from the variability. This is why we haven’t seen a sudden and sharp pickup in mortgage arrears and repossessions as many had predicted when the ECB started hiking up rates in response to inflation.
It’s also why Europe and Ireland experienced only minor technical recessions last year on the back of such aggressive monetary tightening. That said, higher interest rates have been a factor in stifling growth across to euro zone, a stagnation that could be compounded if the incoming US administration makes good on its plan to impose tariffs on US imports.
Housing is just one leg of Ireland’s high-price culture, which undoubtedly has many households on the back foot. We seem to pay more than our European counterparts for all manner of stuff: rent, electricity, insurance, eating out, even a bottle of water.
As a State, we are presiding over the most expensive healthcare facility anywhere on the planet in the form of the national children’s hospital (expected to cost €2.2 billion against an original cost estimate of €650 million).
The furore over the Dáil’s now infamous bike shelter may have indirectly tapped into domestic financial pressures and the sense that people are not getting value for money.
On a basic level, you could argue that the cost-of-living crisis – at its core – was an energy price shock. And while energy prices have come down from where they were in late 2022, they haven’t returned to pre-pandemic levels and are not predicted to any time soon, leaving everyone with permanently higher prices. But not everyone has enjoyed the compensatory wage hikes, creating an uneven impression of the shock and its aftermath.