EU: Irish inflation to be fourth highest in eurozone in 2022 after 'tumultuous' energy price spike

But the European Commission also predicts that Ireland's economy will grow by 14.6%, the fastest growth rate in Europe

Irish inflation will be the joint fourth highest in the eurozone next year, as energy costs spike though the winter months, new EU forecasts show.

In its autumn forecasts, the European Commission said that, following sharp falls last year, energy costs rose “at a tumultuous pace over the last month” and risk pushing prices for households and producers higher.

Across the whole of the eurozone, it said price inflation amid energy costs and global supply shortages will peak at 3.7% at the end of this year “and continue recording high prints in the first half of 2022”, before starting to ease for the rest of the year.

For Ireland, its country-specific forecasts show inflation will average 3.1% in 2022, the fourth joint-highest of the 19 states that make up the eurozone, and will average 1.5% in 2023.

Spike in energy prices

“In recent months, increases in energy prices well above the pre-pandemic levels have fuelled new inflationary pressures and price increases have become broad-based, also under the impact of supply disruptions,” it said about the price pressures in the pipeline the winter across Europe.

High wholesale energy prices are making their way to retail prices for households and producers, though at a varying degree and pace across countries, with potential knock-on effects on consumption and business investment.

Its forecasts for Irish inflation of 3.1% is well above the average 2.2% the Commission forecasts for the whole of the eurozone next year, and compares with the 2.5% rate it sees for all 27 states in the EU. It also sees UK price inflation rising to 3.2% next year.

The inflation forecasts vary sharply between EU states and appear to reflect geography and dependence on wholesale gas and oil markets and access to wind and solar electricity.

Fastest growth in EU

Still, the EU expects the Irish economy will grow at the fastest rate in Europe this year, at 14.6%, in GDP terms, as the exports from multinationals — and from big pharma firms in particular — continue to climb. It sees GDP rising 5.1% in 2023.

On an alternative measure that more accurately reflects Irish domestic conditions, the Irish economy will expand 7.3% this year, helped by the unwinding of pent-up savings, and grow by 5.3% in 2022, it forecast.

It also highlighted survey evidence that some of the billions in pent-up Irish savings will flow into houses. “Multinational companies’ exports and a domestic recovery spur growth”, the EU said of the rapid economic recovery here.

It forecasts Irish unemployment will average 6.8% in 2022, which compares with the average of 7.8% it projects for the whole of the eurozone.

The ECB has repeatedly said it sees eurozone inflation as a temporary phenomenon.

Kieran McQuinn, professor at the Economic and Social Research Institute, said it was important that the ECB keeps its nerve and doesn’t hike interest rates in response to the price pressures.

Meanwhile, the Irish Government yesterday raised €1bn from debt markets at around zero cost.

The debt raise included €650m in a 10-year bond at a yield of around 0.04%.