It's vital for the Government to "take a breath and stop panicking" about current rates of inflation, David McWilliams says.
The economist says the pandemic had "weird and unusual" economic consequences, and it will inevitably take time for it to settle down again.
It comes amid continued concerns about soaring prices and the rising cost of living.
The Government's this week considering fresh measures in a bid to ease the pressure on households, following on from the previously announced €100 energy credit.
McWilliams told The Pat Kenny Show that inflation is a particularly difficult issue for politicians to deal with.
He said: “For politicians, the nightmare is that 1) psychologically we always remember more increases in prices than decreases in prices and 2) what we might have is what we call ‘tit for tat’ inflation.
“If your cost of living is going up, what you do naturally then is demand higher wages. If wages start going up, then prices will go up, then wages will go up, then prices will go up… that’s the tit for tat side of inflation.
“The final part is there are no real tools in the Government’s toolbox - or the Central Bank's [toolbox] - to target Irish inflation particularly.
“There is a vista opening up where we will have higher prices until those prices begin to settle down again.”
He also noted that the rate of inflation stated by statisticians is a 'blend' and that the actual impact will differ significantly depending on a person or household's circumstances.
For example, someone who owns a house outright will have a very different experience to someone renting or trying to get a mortgage.
McWilliams said inflation is “quite natural” in economics - it reflects what is going on, as well as the power dynamics of the time.
He said people and industries pass on price increases when they have the power to do so.
As a result, he believes the Government should be analysing why certain sectors and industries now have the power to pass on price increases that they didn’t have in the past.
The pandemic's impact
McWilliams believes a key issue is that the consequences and ramifications of the pandemic "are not over yet".
He gave the example of the Dalkey Book Festival, which he helps organise.
He observed: “We rent big tents and lots of chairs to go along with those big tents… and of course, we have to have many more outdoor events as people still maybe feel a bit tricky about indoor events.
“The price of the chairs have doubled in two years - that’s each individual chair. In June of this year, all of those postponed weddings [are happening] - everyone wants tents, outdoor venues and chairs.
“At the same time, lots of companies that were in the business during the pandemic probably went bust. So the chair owners are now concentrated in fewer and fewer people… and you have this demand coming in.
“Therefore, the chair provider has the power to increase pieces. That’s what’s happening… and imagine that’s happening all over the place.
"Until such a time as we get back to some kind of normality - which may well take a year - those squeezes on prices are going to be amplified."
He believes anything the State can do will "come up short" of what they hope to achieve, so the important thing now is to "take a breath and stop panicking".
He said: “We’ve just had the most bizarre, weird, unusual [economic event]… well it’s been a medical event, with economic consequences - certainly in my lifetime.
"We can’t expect four weeks after that… that the economy will right itself. It takes time.
"All these things that are going on now will gradually return to normal. The worst thing you can do is start tinkering around now in a panic."
You can listen back to the full interview below:
