Is there a cost-of-living crisis?

On 7 October, the details of Budget 2026 will be revealed. There is continuing pressure for Government to ease cost-of-living pressures, asserted to be severe by mainstream media and opposition politicians. Thus the Irish Times leader last Saturday headlined ‘Put the focus on what is important’, employed phrases like “..the cost-of-living crisis” (note the use of the definite article) and urged ways in which “...claims that households are still squeezed need to be met...”

There are numerous examples from other newspapers and from radio and TV coverage asserting that the cost-of-living crisis is an established fact, affecting the public at large.

Mainstream media have echoed calls from politicians and lobby groups that the public should be compensated by Government for this development and proposals of a lower VAT rate on restaurants, at an annual cost of €800m, are reported positively.

The giveaway element in the upcoming budget has already been set at €9.4bn, including provision for overspends in health and other areas, while the threats to the economy from Trump’s tariff war are acknowledged.

Add in the transient revenue boost from corporation tax and the same media are clearly aware of the risk that the Government could easily slip into deficit. But they nonetheless push the line that the public at large somehow deserves compensation for declining living standards. All within the bounds of fiscal prudence of course.

Exaggeration

If there is truly a crisis in living standards, comparable to the COVID-19 outbreak or the jump in energy costs subsequent to the Russian invasion of Ukraine, the constant media coverage of inflation, especially in grocery prices, would indeed point to a case for government action.

But the evidence suggests that the cost-of-living crisis is exaggerated by print and broadcast commentators. The latest data from the Central Statistics Office (CSO) puts the inflation rate in the 12 months up to July 2025 at 1.7%. The target inflation rate for countries in membership of the eurozone is 2%, so there is no inflation crisis relative to target.

But there is none relative to recent experience either. Inflation has fallen dramatically – the July year-on-year consumer price index (CPI) inflation figures have developed as follows:

The scary inflation figures had already gone missing in the CSO data by the middle of last year and have fallen again in the latest calculation. Whatever inflation crisis induced the emergency spending in recent budgets is well and truly over, unless the Irish Times and other outlets have superior information to the CSO.

Inflation, whatever the rate, will cut living standards unless household incomes are rising to keep pace and they are. After a sharp fall of 9.3% in 2020, the first year of COVID-19, the volume of consumer spending in real terms recovered almost all the decline the following year and has grown 3.4% compound over the five years to 2024. Figures for 2025 are not yet available but a further improvement is expected. So overall living standards, adjusted for inflation, have not been declining, they are back on the rise.

People may feel that living standards should be higher, they always do, but the CSO figures confirm that there is no widespread crisis in real consumer spending.

Nominal incomes have risen to match the price level increases. These are national averages. Some households, including renters, have indeed felt a bigger pinch from the inflation surge but the media chatter about declining living standards is overblown.

The figures cited are for the all-items CPI and some of the sub-components can exhibit sharp rises and falls even when the overall index is less volatile.

This often happens with energy prices and the food category has recently been rising more quickly and for the same reason – almost all Irish agricultural output is sold on world markets and domestic prices take their lead from export prices, just as the domestic price of energy items is driven by import costs.

World prices for beef and dairy have been strong, but the weight for food items in the CPI index, about 10% nowadays, is too low to feed a general inflation or a material decline in living standards.

The public appears to be especially sensitive to price rises for repeat purchases and the media rarely draw attention to the steady decline in recent decades of the weight attaching to food in the overall index.

Calls for state action to offset what may turn out to be temporary shifts in components of the CPI ought to be resisted, not least because the public finances are fragile, as ministers are well aware.