The Governor of the Central Bank of Ireland, Gabriel Makhlouf, expressed concerns about the government’s decision to raise public spending above 5%, warning it could worsen inflation and wage pressures. Speaking to the Oireachtas finance committee, Makhlouf said that this fiscal expansion risks overheating an economy at full employment and could undermine competitiveness. He emphasized the need for careful fiscal management, especially in areas like housing and climate-related investments, while addressing bottlenecks in planning and construction to avoid further inflationary pressures.

Balancing Public Investment with Inflation Control

Makhlouf acknowledged the necessity of increased public investment, particularly in housing and climate change, but cautioned against overextending spending. He argued that the projected public investments should be balanced with efforts to keep overall spending growth below 5%, ensuring that spending is efficiently managed to prevent inflation from spiraling out of control. He pointed out that rising inflation, particularly in domestic services, remains a concern, despite global inflationary pressures easing.

Reforming the Consumer Protection Framework

The Governor also defended the Central Bank’s decision to abolish the Consumer Protection Directorate as a standalone entity, integrating its responsibilities across various supervisory sectors. While Sinn Féin’s Pearse Doherty and Senator Alice Mary Higgins voiced concerns over this move, Makhlouf reassured that consumer protection remains central to the Bank’s operations. He explained that distributing consumer protection responsibilities across different directorates would enable more focused supervision and address risks where they emerge.

Economic Growth and Broader Challenges

Makhlouf highlighted the robust growth in Ireland’s economy but warned that domestic challenges, including supply and infrastructure constraints, could hinder future performance. As Ireland deals with supply shortages, particularly in housing and services, he stressed that long-term sustainable growth depends on balancing investment needs with inflation control measures. Additionally, addressing inefficiencies in planning and construction could incentivize private investment, further aiding economic stability.

Ongoing Debate Over Consumer Protection Focus

Despite Makhlouf’s reassurances, the changes to consumer protection oversight have sparked a debate. Senator Higgins argued that the removal of a dedicated Consumer Protection Directorate could make the Central Bank less accessible to individuals seeking to challenge systemic issues. However, Makhlouf reiterated that consumer protection remains a priority, with the new framework allowing for a more flexible and risk-based approach to supervision.

Conclusion

The Central Bank Governor’s warnings underline the delicate balance the Irish government must strike between necessary public investment and the potential risks of inflation and economic overheating. As the country faces domestic and global challenges, careful fiscal and operational management will be key to maintaining sustainable growth and safeguarding consumer protection.