Price rises to continue as inflation to peak in early summer

War in Ukraine has also ratcheted up the risks but the economy will expand

In its latest in-depth economic outlook, the ESRI sees consumer price inflation climbing to 8.5% in June and July. File Picture: PA

Consumer price inflation peaking as high as 8.5% in early summer will likely require more Government subsidies, and targeted preferably at households most at risk from surging energy and food bills, the Economic and Social Research Institute (ESRI) has said. 

Ireland's leading think tank said that the Ukraine war has also ratcheted up the risks but the economy will nonetheless expand at a rapid clip this year and in 2023, as long as there are no new major shocks to the supply of energy to global markets.    

In its latest in-depth economic outlook, the ESRI sees consumer price inflation climbing to 8.5% in June and July, up from 5.6% last month, before moderating for an average of 6.7% this year. Irish inflation, however, remains hugely elevated, at 5% in 2023.          

Since the Russian invasion last month, wholesale prices of gas, oil, and wheat on global markets have climbed further, meaning no let-up in the inflation pressures that are spilling across economies, including in Ireland. 

The Government has so far responded by offering increases and expanding the number of households who can qualify for fuel allowances, providing a €200 energy credit for all households, and cutting excise duties on petrol and diesel and lowering public transport fares.  

Further supports needed

Further supports may well be needed for households who are most vulnerable to rising costs, said ESRI professor Kieran McQuinn, as the think tank identified that "low income, rural, and older households experienced substantially higher levels of inflation on average".       

"Really, really big growth" last year, thanks to the exports of multinationals including the makers of pharmaceutical and computer equipment, will slow as the uncertainty over Ukraine mounts, said Conor O’Toole, an associate research professor.  

ESRI professor Kieran McQuinn: Further supports may well be needed for households who are most vulnerable to rising costs. Picture: Sasko Lazarov/Photocall Ireland

The Irish economy through its companies and limited trade with Russia is much less affected directly by the war than many others in continental Europe, but the Irish recovery will nonetheless slow as the pace of the global economy slows. 

Exports which surged in 2021 will continue to grow, and the economy will expand 6.2% this year and by 4.3% in 2023, in GDP terms, the ESRI projects.        

The billions of euro in excess savings built up by some households during the pandemic will mean consumption continues to grow despite the inflation shocks from the war, and unemployment will fall to an average of 4.8% in 2023, it forecasts. 

After two years of the pandemic, the public finances are in "quite a good position"; however, the war has increased the risks significantly, with assistance for refugees, aid to protect households from energy costs, and aid to badly hit industries such as agriculture, Prof McQuinn said.   

Small budget surpluses

The ESRI currently projects small budget surpluses this year and in 2023.   

Prof McQuinn said that there was little to hold back house prices even as the number of starts in new house building grew substantially late last year.

However, any ECB interest rate increases could start to take the heat out of house prices, he said. 

House prices grew by the annual rate of almost 15% in January.