Inflation: what it is and what it means for everyday costs

What is inflation?

Inflation is a general rise in the prices of goods and services over time. It is usually described as a rate of change in a price index. When prices rise overall, each unit of money buys less than before. ⁴

This is about the average price level, not every individual price. One product or service can become cheaper while the broader basket of prices rises. The source material here does not give a current euro zone consumer inflation rate, so it cannot tell us how quickly ordinary household expenses are changing as a whole.

Why are people talking about inflation now?

A September survey of euro zone businesses reported stronger activity and higher cost and selling-price pressures. The final composite Purchasing Managers’ Index, or PMI, rose to 53.1 from 52.0 in August. The PMI is a survey-based indicator of business activity; readings above 50 indicate expansion and readings below 50 indicate contraction. ¹

The survey’s input costs and selling prices rose at their fastest rates since May, according to reports of the S&P Global findings. That is a sign that businesses surveyed reported renewed price pressure. It is not the same as a measured rise in the prices households pay across the economy. ¹²

Does faster business growth mean prices will rise?

Not necessarily, and the survey alone cannot answer that. It found that new orders rose at their fastest pace in 41 months and that outstanding work increased for the first time since June 2022. Companies responded by hiring, though employment growth remained marginal. These are signals about surveyed businesses, rather than a forecast of what every household will pay. ¹

Higher business costs and selling prices can matter because firms may pass some costs on to customers. But these reports do not establish how much of the cost increase will reach consumers, when that might happen, or whether prices will rise across all goods and services. ¹²

What does inflation mean for an ordinary reader?

If the prices of the things you buy rise faster than the money available to spend, your purchasing power falls: the same budget covers less. That is the everyday effect behind the usual explanation of inflation. ⁴

A general inflation measure describes an average, not every person’s experience. The supplied sources do not provide household-specific budgets, wages, savings or current consumer-price figures. So they cannot show how much a particular reader’s costs have changed. They do show why it is useful to distinguish a business survey about costs and selling prices from an index measuring consumer prices.

What does the Irish house-price figure tell us?

House prices are one part of the cost picture, but the figure cited here is not a measure of inflation across all household spending. Eurostat’s owner-occupied housing price index, as reported by The Irish Times, showed Irish prices up 3.5% year on year in the second quarter. The euro zone average was 4%. ³

The same report said Ireland’s prices rose 0.7% from the previous quarter, compared with a 1.4% euro area average. These figures concern owner-occupied home prices and a specified period; they should not be treated as a current reading for groceries, energy or the overall consumer price level. ³

What should I watch for next?

The useful distinction is between reports about business conditions and official measures of prices paid by households. The September PMI offers information on activity, input costs and selling prices; it does not provide a complete consumer inflation rate. ¹²

For an up-to-date picture of consumer inflation, look for an official consumer price index from the relevant statistical agency. For personal questions about budgeting or borrowing, consider speaking with a qualified professional. The sources provided do not establish what future inflation will be.