Between Monday and Wednesday, the bulk of domestic energy consumed in Ireland saw its cost fall after Electric Ireland and Bord Gáis Energy, the two largest suppliers, announced cuts of between seven and 10 per cent to their electricity and gas prices from March. This is the second round of cuts since November.

Everywhere you look, energy prices are falling. Europe’s wholesale gas price, which underpins retail energy bills here, has halved in the past year. 

At the pump, motorists are also seeing the effect of falling oil prices. While petrol and diesel were cheaper last spring, both are again on a downward trend and are no more expensive than they were before Russia’s full-scale invasion of Ukraine.

Fuels are not the only commodities reversing the inflation trend. Wheat, the central food benchmark in Europe, is heading for annual lows, too.

Enough data, you get the picture. The ramifications of what drives those dynamics and the consequences they have on the economy are more complex, however.

On the root causes of recent inflation, I listened to French journalist Marion Van Renterghem on Radio France Internationale earlier this month as she outlined the thesis of her book Le piège Nord Stream (The Nord Stream Trap). In chilling detail, she explained how the direct submarine gas pipeline network from Russia to Germany had formed the central plank in a carefully executed plan by Vladimir Putin to achieve the ultimate conquest of Ukraine. 

Van Renterghem was scathing of the European authorities, the German ones in particular, for falling headlong into the trap. Once Nord Stream 1 and 2 were connected to an EU addicted to Russian gas, Putin’s calculation was that Ukraine would no longer be of any use to Europe as a transit country for the fuel, and his invasion would go unopposed. 

This reading of recent history supports the theory that Ukrainian operatives sabotaged the Nord Stream pipelines seven months into the ongoing war, as convincingly reported by The Washington Post last year.

Van Renterghem’s view is that European leaders have somewhat redeemed themselves by unwinding the EU’s reliance on Russian gas in the past two years. According to her, this – along with Ukraine’s unexpected resistance – is the part of Putin’s plan that didn’t work. It is reflected in the gas price trend above: Even as Russia enjoys relative military success, having stopped Ukraine’s 2023 counter-offensive in its tracks, it is failing to cause a second winter of energy-induced inflation across Europe. 

In fact, even other attempts by anti-Western actors such as Iran and its allies to foster instability across the oil- and gas-rich Middle East and to disrupt trade through the Red Sea and the Suez Canal are showing no significant impact on prices.

As Peter explained on Tuesday, disinflation is now embedded in economic trends too deep to be swayed by the ups and downs of continuing geopolitical uncertainty in Ukraine and the Middle East (a Chinese invasion of Taiwan would be another story).

Rates cuts are coming sooner rather than later

China’s economy, a bellwether for the world, is reporting an annual three per cent drop in the price of goods its factories ship all over the world. Peter observed similar signals everywhere, from US housing to oil production. While central banks have increased interest rates to cool inflation down to its two per cent target, he also warned that there is no reason for it to stop falling once it reaches that threshold. At that point, rates may fall faster than we expect.

“On balance, I think rate cuts will be an issue for the second half of the year, but the risk is that the major central banks end up cutting rates sooner rather than later,” he wrote. This was followed a few days later by a Reuters poll of economists showing they expected rates cuts earlier than previously, with 45 per cent of respondents betting on the ECB making its first move in June.

On Thursday, Stephen reflected on the effect the reversal of the past two years’ inflation spike might have on consumers and businesses. The media and their audiences give more attention to price increases than decreases, he wrote. Businesses in sectors like food and hospitality, meanwhile, appear to have increased prices one last time at the end of 2023 – not to pass on increases in input costs, but because they thought it was their last chance to do so before inflation ended. 

Quoting economist Julio Rotemberg, Stephen wrote: “Imagine you’re running a firm and you have to make a pricing decision that will probably upset your customers. You realise that price increases will become less palatable once inflation slows down. As Rotemberg puts it, ‘this acts as an incentive to raise prices before inflation falls, and thereby postpones the onset of low inflation’.”

This points towards a fight for the allocation of the fat that is building up in the pricing system, as illustrated by the difficult public sector pay talks adjourned last week. Minister for Public Expenditure Paschal Donohoe is now hinting that there is room for further negotiation, beyond the Government’s initial offer of an 8.5 per cent pay rise over the next 30 months. “This year will likely be one of distributional discontent,” Stephen wrote.

This is just one of the many moving parts in the major realignment taking place before our eyes between prices, interest rates, profits and wages. As Ronan detailed last week, there are many implications for the housing sector alone.

Lower energy bills will make everyone happy. Who wins and who loses elsewhere remains to be determined.

*****

Elsewhere last week, Kate had a detailed interview with former Olympian Derval O’Rourke about the business behind her wellbeing app Saol. They discussed O’Rourke’s plan to build upon the largely female audience of her website Derval.ie to appeal to a wider customer base including businesses, her partnership with Greg O’Gorman of the famous dynasty behind Kilkenny Design and raising funds for her start-up. 

Businessmen brothers Greg and Hugh Kavanagh’s dispute was aired in the High Court this week, featuring extraordinary allegations of night-time intimidation, purchase of “disparaging” recordings and threats of eviction. Francesca was in the courtroom.

Sinead took a fresh look at the power that online platforms exert on people through the exploitation of their data, using a concept central to the establishment of democracy: self-determination. “Are we self-determinant human beings if we live and die by a busy schedule that is out of our control?” she asked.

Finally, Niall interviewed Richard Brennan, the latest in a multi-generation family of car parts dealers in Co Monaghan who is leveraging technology to make eco-friendly second-hand spare parts available to customers including An Garda Síochána. It is a practical and inspiring example of the sometimes elusive circular economy.