Inflation hits nine-year high as electricity prices surge

Soaring electricity prices have helped stoke inflation to its joint highest level in nine years, official figures show.

Power prices have gone up by almost 10% in the past 12 months – which experts say is down to a ‘triple whammy’ of the rising cost of gas and coal used in power stations, a lack of wind for renewables and increased demand as the economy reopens.

The official inflation figure is now 1.7% and is at its highest level since it briefly also hit 1.7% in April 2019, before turning negative a year later.

The European Central Bank’s official target is to keep it below but close to 2% over the ‘medium term’.

The last time inflation was this high for more than a single month was nine years ago in June 2012, but the trend was downwards then and it is upward now.

The average electricity bill is around €1,500 a year for many people, so a 10% increase will add €150 to their annual bill, which is about €3 a week.

Despite the increased amount of wind-generated power on the grid and plans for more turbines, up to 50% of power is still generated by burning peat, oil, coal and gas.

Peat is being phased out and oil use has been greatly reduced over recent years, but coal and gas are still heavily used and their prices have ‘sky-rocketed’ recently.

Also, people are driving far less now also because of pandemic restrictions, but motorists are in for a shock when they do hit the road again, as petrol and diesel prices have shot up by 10% or more over the past year.

Petrol is up more than 11%, so this has added 15c to a litre, which now costs 149.9c in most garages. Diesel is up by around the same percentage, and a litre now costs 139.9c.

Daragh Cassidy, of price-comparison website Bonkers.ie, explained: ‘It’s case of supply and demand, and as the world economy has slowly begun to reopen, demand for them has unfortunately been passed through. The other point is wind output has been lower than expected over the past few weeks and that hasn’t helped.

‘Coal and gas in particular have just skyrocketed in the past few months on wholesale markets, so because fuel costs make up around 40-45% of the final energy bill, it will have a huge impact on prices. Then, also, a few power plants have been down for maintenance so it’s been a triple whammy – all these bad things coming together at the same time.’

The price of energy has trebled over the past year. A megawatt of energy on wholesale markets cost between €30 and €40, but is now €100.

‘Energy prices are notoriously difficult to forecast, and oil and, to a lesser extent, gas are tradable commodities. People can bet on their price as well so that has to be factored in as well,’ Mr Cassidy added.

People have little choice but to pay the higher prices other than switching to better deals and future-proofing their homes by using low-energy appliances and lightbulbs and insulating their homes.

Consumers’ Association of Ireland chief Dermott Jewell said: ‘Prices have been steadily increasing over the past year. We have to acknowledge that business has suffered but so too have the consumers they rely on. If prices increase it’s a problem because incomes are not increasing at that pace – a very real problem.’

Mr Jewell added: ‘There are much more open markets that they can access and they will do so, but it’s a problem if all prices rise at the same time from all providers.’