For Ireland, where goods deflation put downward pressure on overall (HICP) inflation for much of the last two decades, this is a huge swing.10 The third shock is Russia’s war of aggression against the Ukraine, which, quite apart from the devastating consequences for the people of Ukraine, has also exacerbated global inflationary pressures and supply-side constraints, notably in energy and food commodity inputs.
The euro area is net importer of energy. Therefore, the scale of the energy price changes we are facing – up around 40% in the last year– constitute an unprecedented terms of trade shock for the euro area. We are all significantly worse off as a result.