Why Ireland has Scandinavian prices but without the salaries to justify them

A Norwegian pal of mine told me recently that he reckoned Ireland had caught up with Norway in terms of prices albeit with one exception: beer.
He expects to pay around €10 for a pint in Oslo. The latter is similar to the prices being charged by some establishments in Dublin’s Temple Bar but obviously they are not reflective of the capital or the country as a whole.
He says that when he first came here in 1998, Ireland was so “inexpensive by comparison” but now the price differential (outside of a pint) is negligible.
His perception of prices in both countries appears to confirm the notion that Ireland has, over the past two decades and for reasons that no one can quite explain, acquired Scandinavian prices but without the salaries to justify them.
His experience is also borne out by Eurostat’s annual country-by-country price survey, which ranked Ireland as the second most expensive EU memberbehind Denmark in 2023 with citizens here paying 42 per cent more for basic goods and services than the EU average.
[ Irish consumers paying 42% more for goods and services than EU counterpartsOpens in new window ]
The survey encompasses several non-EU countries, including Norway, which was found to be 25 per cent more expensive than the EU average, so cheaper than Ireland. But Norway’s average was dragged down by energy prices, which are subsidised.
In a raft of other areas – food, clothing, alcohol, telecommunications, furniture, consumer electronics – Ireland and Norway were similarly positioned versus the EU average. Norway was, however, a bit more expensive when it came to restaurants and hotels and considerably more expensive when it came to transport services.
The Eurostat survey does not include data on house prices but according to Real Estate Norway, the average price paid for a property in Norway in August was the equivalent of €405,863 while the Central Statistics Office put the average price here (in July) at €409,645. So strikingly similar.
There are several partial explanations for Ireland’s high-price culture: our island status, our dispersed population, higher wages, a lack of competition, taxation (particularly on alcohol and cigarettes), insurance costs, lower Government subsidies for things like transport and childcare. But there’s no one overarching explanation.
I recently asked the ESB’s chief financial officer Paul Stapleton why energy prices here are typically higher than the European average. His answer was threefold: our dependency on natural gas (about 50 per cent of energy is generated from gas, which has been exceptionally volatile in terms of price in recent years); the dispersed nature of our population also adds to costs (we need more electricity network per individual customer than the higher-density populations of Europe); and scale. The power plants here are smaller and don’t benefit from economies of scale.
[ ESB finance chief plays down prospect of further energy price cuts amid fall in profitsOpens in new window ]
It was a cogent explanation for why, in that one area, we pay a premium. But Ireland’s high prices extend beyond energy. We seem to pay over the odds for all manner of stuff: rent, electricity, insurance, eating out, even a bottle of water.
As a State, we are presiding over the most expensive healthcare facility anywhere on the planet in the form of the national children’s hospital (expected to cost €2.2 billion against an original cost estimate of €650 million).
The cost of the Dáil’s now infamous bike shelter (€336,000) is on a par with the median (middle value) price paid for a home nationally in the 12 months to July of €340,000.
A flashpoint area is hospitality. Consumers are enraged at the prices being charged for coffee, food, alcohol, hotel rooms. At the same time, restaurants and food businesses are going bust at an accelerated rate as their margins collapse in the face of higher costs. The Restaurant Association of Ireland (RAI) says a typical food business with a turnover of €1 million will see its total costs increase by €97,000 this year.
The single biggest driver, accounting for €37,000, relates to the increased VAT rate (the Government removed the reduced rate for hospitality last year) followed by wage inflation at €36,000; and increased supplier costs of €13,500. If the minimum wage goes up by 80 cent-€1 an hour in next week’s budget, as ministers have indicated, this will push the annual increase in costs to over €100,000, says RAI chief Adrian Cummins.
The interplay between the minimum wage and hospitality prices appears to be one of several self-perpetuating price dynamics in Ireland at the moment.
Another is rent. The Government has been supporting private sector rents through HAP (Housing Assistance Payment) and other schemes. More than half of renters here now claim some form of support from the State. At the same time, Irish rents have been rising, at two-and-a-half times the euro area average since 2019.
It may be an overstatement to say we’re in the grip of a wage-price spiral but there are negative cost-price dynamics evident in several sectors.