Even with both partners earning, numerous young families continue to face financial constraints, struggling to manage their monthly bills. Despite the decrease in inflation and increase in wages, why is it that the financial situation seems unimproved? Were the living cost crises not anticipated to subside, bringing some relief? For many, yes, but there are explanations as to why numerous households continue to experience financial difficulty.
Though inflation has experienced a significant decrease, prices in various areas persist at elevated levels. The yearly increase in the Consumer Price Index of Ireland currently stad at 2.2%, a decrease from the October 2022 peak of 9.2%. However, this only means that the rate of price increase has generally slowed down, not that prices have actually decreased. Decreases have been seen in household energy bills and potentially can fall further, although instability in the Middle East poses a threat. The increases in other household bills brought on by the living cost crisis are yet to be overturned and the reverberating effects are still noticeable in places.
The Economic and Social Research Institute (ESRI) recently conducted an analysis of real wage movements – average earnings adjusted for inflation. These saw a significant drop in 2022-2023, with a 6.5% decrease in real wages. Though 2024 saw wages increasing and inflation decreasing, it’s speculated that inflation-adjusted wages might not return to pre-Covid standards until 2026.
Ultimately, the Government’s one-off supports like energy credits and double child benefit weeks have somewhat softened the blow on household spending power. While this aid was beneficial for all households, it was significantly important for lower earners. As the payments stop and families anxiously await the October budget’s outcomes, real earnings on average continue to sit below the pre-cost-of-living-crisis levels. Households had grown accustomed to a long period of minimal inflation following the financial crisis, with such fluctuations being common in periods of inflation in the past.
October’s budget is characterised by major decisions such as potential increases in child benefits, along with heightened power charges. This comes at a time when costs in Ireland are comparatively high. According to recent Eurostat data, Ireland secures the second position in the list of costliest countries, its prices being 41.8% more than the EU average. Even though such elevated costs are somewhat softened by non-EU nations such as Switzerland and Iceland having higher rates, the high price levels continue to significantly strain the budgets of Irish families.
In specific, products like alcoholic beverages fall in the pricier bracket due to substantial taxes, costing twice as much as the EU average. However, clothing prices are marginally lower than the EU norm.
An additional financial challenge Irish households are facing surrounds mortgage repayments. The recent spurt in interest rates has particularly affected homeowners with tracker mortgages, as the European Central Bank is escalating borrowing costs. Younger buyers who have greater outstanding mortgage balances are also feeling the impact as their fixed-rate mortgage deals are expiring, forcing them to refinance at steeper rates.
Indeed, those who had settled for fixed-rate loans for three to five years before the increase in interest rates have found themselves readjusting at higher rates of between 4 to 4.75 per cent, with some even surpassing this range. This has resulted in potential monthly hikes in repayments, ranging from €200 to €250. Although fixed-rate offers have marginally decreased recently, the pace of decline is sluggish, with costs remaining high for those homeowners with homes having lower BER ratings. Some who switched to a variable rate temporarily are now looking forward to somewhat lower fixed rates, hoping for further reductions moving towards 2025.
Approximately 70,000 to 75,000 mortgage holders are expected to reach the end of their fixed rate period within the year, representing an influential number of households.
Furthermore, the position of Ireland as a high expense country puts additional pressures on young family incomes. Childcare costs stand out as a principal issue where, in spite of growing Government subsidies, rates persist at over €1,000 monthly especially in Dublin and even more in upscale areas. The childcare sector holds ongoing discussions about governmental support structure and measurement and whether service providers should be permitted to hike fees to counterbalance increasing costs, especially wages. Those that participated in the Government’s National Childcare Scheme by promising to freeze fees are now waiting for decisions about future firm policies. There are signs that the Government may permit fee increments in line with the annual subsidy boost. Either way, childcare fees reflect the significant costs of running any Irish operation and the delayed channelling of substantial Government resources into the sector. At the same time, energy prices, despite having reduced from their peak, continue to be higher than pre-crisis levels.
The Government faces a quandary in the budget in regards to these ongoing pressures experienced by young families. While continual support in areas like childcare is guaranteed, the exact level and format is yet to be determined. However, from 2022 onwards, the Government has also offered a variety of one-time payments to households – energy credits, additional child benefit weeks, additional double welfare weeks, and specific payments targeted at particularly needy areas. Unsurprisingly, the universal payments such as energy credits are the most costly for the treasury. For instance, last winter, a family with two children would have obtained €450 in energy credits and an extra child benefit payment of €280, paid the preceding December, to total €730. Those eligible for additional payments like the working family payment for lower earners, would have received even more.
As inflation decreases, the British Government faces a predicament over whether to make these one-time cash payments again. The benefit of this option is that it doesn’t result in a long-term obligation for the treasury. However, a disadvantage lies in the expense involved and the perception that such one-off payments simply mask the underlying issues without resolving them. Furthermore, these universal benefits like energy credits, presented to all households, extend not just to low-income earners and the financially constrained middle class, but also to households well off economically. Current signs suggest that the Coalition is likely to launch another cost-of-living package, with disbursements expected in the last few months of this year. The final layout, however, remains to be finalised.