Irish price pressures will take time to ease back, says EU

EU projects Irish inflation will slow to an average rate of 4.6% this year, down from its current rate of around 7%, and fall to average rate of 2.6% in 2024

Irish inflation will ease this year but remain at elevated levels even as energy and food prices fall, while the economy will continue to be the best-performing in Europe, the European Commission has forecast.  

In its spring forecasts, the EU projects Irish inflation will slow to an average rate of 4.6% this year, down from its current rate of around 7%. Inflation is then seen falling to an average rate of 2.6% in 2024.      

The EU inflation forecast is below the 4.9% inflation rate this year the Department of Finance forecast in April in its spring update, but is in line with its 2.5% inflation projection for 2024.  

By way of international comparison, the new EU forecasts suggest Irish inflation pressures are running cooler than in France, and significantly cooler compared with Germany, where the EU projects inflation will run at an average of 6.8%.   

Ireland will continue to be Europe's fastest-growing economy, and unemployment at 4.3% will remain close to historically low levels, suggesting the economy is "operating at full employment", and wages likely to rise "significantly", according to the EU. 

GDP will expand 5.5% and by 5% this year and in 2024, respectively. Those forecasts compare with the 5.6% and 4.1% rates projected by the Department of Finance last month. 

Irish exchequer among richest in Europe

The EU forecasts also suggest the Irish exchequer will continue to be one of the richest in Europe, with the State expected to run budget surpluses this year and in 2024, helped by the billions in euro flowing in from corporation tax receipts from multinationals.  

The inflation numbers from the commission are closely watched for clues on how long the European Central Bank (ECB) will continue on its cycle of hiking interest rates, which are designed to rein in price pressures across the eurozone.

Its rate decisions are decided in terms of price pressures and meeting its medium target for inflation of around 2% across the eurozone, a target that pivots on price pressures in the largest eurozone economies. 

The ECB has repeatedly highlighted the dangers of price pressures becoming embedded and has warned about pressures staying "too high for too long", citing measures of core inflation that strip out energy and food prices from the headline rates.  

Core inflation stubbornly high

In a commentary, commission executive vice-president  Valdis Dombrovskis highlighted that core inflation is remaining at stubbornly high levels in the EU.  

"The European economy is in better shape than we projected last autumn. Thanks to determined efforts to strengthen our energy security, a remarkably resilient labour market and easing supply constraints, we avoided a winter recession and are set for moderate growth this year and next. 

"Inflation has proved stickier than expected but it is forecast to decline gradually over the remainder of 2023 and in 2024. And the improvement in public finances is set to continue as energy support measures are progressively withdrawn," he said.