This Government has balanced careful management of the public finances with addressing the important issues facing our country. We will continue to take this prudent but supportive approach in the forthcoming budget. As the deputy notes, inflation has been a particularly significant challenge for families in recent years.
Inflation reached multi-decade highs in 2022, peaking at 9.6 per cent in June 2022. This was extremely challenging for households who saw their purchasing power significantly eroded as result. Since then, enormous progress has been made in reducing inflation with headline HICP inflation of just 1.5 per cent in June. This is the lowest rate since April 2021.
Key to this moderation has been the partial reversal of energy prices from extremely high levels. Consumer energy prices in June are estimated to have decreased by 5.6 per cent compared to June last year. This decline captures the fall in wholesale energy prices being passed through to retail gas and electricity bills. I expect further cuts to take place throughout this year as this process continues.
However, I am conscious that pockets of inflationary pressure still remain, particularly in domestic sectors, especially for certain services activities. In part, this is due to capacity constraints in the economy. The labour market is essentially at full-employment and supply-demand imbalances are evident in a number sectors, including housing, a key policy priority area for the Government.
Throughout this period of high inflation, the Government has been at the forefront in supporting the most vulnerable. By responding swiftly and decisively to the cost of living challenges, the Government has helped to mitigate the impact of inflationary pressures on both businesses and households. The temporary and targeted nature of the measures taken by Government have been designed to avoid adding to the inflationary burden whilst providing support to those most in need.
Looking forward, I expect the moderation in inflation to improve households’ purchasing power and support increased consumer spending over the year.
Government will set out the parameters for Budget 2025 in the Summer Economic Statement, which will be published shortly.
