By Eamon Quinn
New forecasts by the EU project a steep rise in consumer prices in the next year, but wages may yet increase at a faster pace to ensure higher spending power.
In the summer forecasts, the European Commission projected Ireland’s rate of inflation, as measured by a harmonised rate that smooths comparisons across European countries, will rise to 1.3% in 2019. That compares with the CSO’s consumer price index in June which showed prices rose an annual rate of only 0.4% in June and by 0.7% under the harmonised measure.
The commission said that Irish inflation so far this year has been weighed down by the gains of the euro against sterling, which has helped keep a lid on the costs of the many imports from the UK. However, it projects, that prices of goods and services will rise next year as higher global crude oil pushes up energy costs, while wage increases gain as unemployment falls further.
The commission also projected that Irish GDP will again top the EU league and increase 5.6% this year, more than twice the eurozone average, and increase by 4% in 2019.
Investec Ireland chief economist Philip O’Sullivan said one-off effects such as lower insurance premiums that have weighed on prices in the past will unlikely be repeated and that overall inflation will rise.
However, he said despite the significant step-up that prices were not racing ahead, while the growth in wages running at around 2.4% a year will more than compensate, and ensure that living standards continue to rise.
He said that despite the winter storms earlier this year the economy will likely grow at a world-record rate for an advanced market economy. Bord Gáis Energy said higher crude oil prices and electricity prices had pushed up its energy cost index last month, and gas prices were significantly higher from a year earlier.
In its report, the commission again warned about the risks to the Irish economy from the Brexit negotiations and potential changes to the global tax regime.
A report by Enterprise Ireland, the agency that helps fund and assist Irish-owned firms, said most firms had made efforts to prepare for the effects of Brexit, including seeking out new exports markets beyond the UK. It said its client firms boosted exports to over €22.7bn last year, up 7% in the year. The Government agency has been seeking to encourage firms to expand beyond British markets to safeguard against any adverse outcome to the Brexit talks.
Its 2017 figures showed progress toward achieving that goal. Enterprise Ireland clients increased their exports to the eurozone by 9%, to over €4.6bn. Exports to the UK still account for over a third of the Enterprise Ireland total. They rose 4% to over €7.6bn in the year.
“We are progressing with our strategic ambition to expand the Irish export footprint in diversified global markets, reducing overall UK market exposure to one-third by 2020,” said Julie Sinnamon, chief executive at Enterprise Ireland.
Mr O’Sullivan at Investec said many Irish exporters had already been affected by the slump in the value of sterling against the euro since the UK voted to leave the EU two years ago. Volatility was likely to continue, affecting Irish-owned firms because they disproportionately rely on sales in the UK.