Gabriel Makhlouf: Monetary policy and non-performing loans (NPLs)

Remarks by Mr Gabriel Makhlouf, Governor of the Central Bank of Ireland, at "The Economist 18th Annual Cyprus Summit", Nicosia, 18 October 2022.

Central bank speech  | 
28 October 2022

Good morning from the other end of the European Union.  Let me say a few words on monetary policy and NPLs.

Monetary policy

First, monetary policy.

In the lifetime of the euro, inflation has reached record highs.  Headline inflation was 10% in the euro area and 8.6% in Ireland in September.  This marks a rapid shift from the low inflation we experienced for much of the decade before the pandemic: in Ireland, inflation averaged just 0.5% per year in the ten years to 2019.

The initial impulse for higher inflation was the pandemic, in particular the lifting of restrictions, and the global supply bottlenecks that resulted from it. Russia's war in Ukraine was a further shock impacting commodity prices, and especially gas prices.  In August, food and energy price increases accounted for two-thirds of headline inflation in the euro area. 

The persistent and overlapping nature of these shocks has had significant indirect effects.  

The prices of many services and goods that rely on energy as an input have also risen sharply. We see this in the core inflation measure – stripping out energy and food price changes – which has risen steadily over the year to stand at 4.8% in September.   

The number of items in the euro area HICP basket with price increases of greater than 2% has been rising. Now, more than six out ten items in the basket are seeing price increases greater than 5% year-on-year.