One of the many good things about having a seven-figure income is that you’re probably not going to be that worried about inflation.

For the rest of us it is remaining persistent, while there are some signs of improvements over the horizon.

First though, there will probably be more pain to tolerate. Today (Thursday), the European Central Bank is almost certain to raise interest rates by another 0.5 percentage points as policymakers continue to try to calm demand by making borrowing more expensive.

Economists will keep a close ear on what is said at the ECB press conference to get a better idea of how much further rates might rise. Ahead of that, there is a consensus around the bank hiking by another percentage point after tomorrow’s meeting, meaning rates hitting 4% before the bank pauses.

Rising costs

This will mean loan (and mortgage costs) will continue to rise. Consumers will be faced with a double whammy. Inflation is making everything more expensive and the ECB is making the money to buy anything more expensive.

To bring this, literally, back to the farmyard we can look at the costs involved in building a new shed.

My colleague Martin Merrick last week had a great piece looking at how far the costs of buildings have moved ahead of Department of Agriculture reference costs.

Actual on-the-ground prices are 20% ahead of reference costs, which means less of the total price is grant-aided.

Steel prices doubled over a period of three years while concrete is still far ahead of its pre-COVID level. The supply bottlenecks and surging energy costs that originally drove those price moves are a thing of the past, and yet we have not seen a proper reversal in costs.

A report published by the Society of Chartered Surveyors of Ireland earlier this month showed that the national rate of construction inflation in Ireland is running at 11.5%.

Taking all this together, we can see how much both inflation and higher borrowing costs can hit the bottom line.

We can see the jump in costs and the jump in interest rates together mean the cost to a farmer of a shed that was €68,930 has jumped by over €42,000, with all of the rise down to inflation and higher borrowing costs.

Looking at those numbers, any farmer might think there is no point in building the new shed. Which is probably exactly what the ECB would want them to think. After all, if enough people decide not to go ahead with their construction projects, the price of materials will fall. Inflation will drop, ECB interest rates will drop and the shed will become affordable again.