Irish inflation cools, but wage rises still fail to keep up the pace

With inflation at 5.4% in May, CSO figures show average weekly earnings rose by only 4.3% in the first three months from the same period in 2022, suggesting the squeeze on the living standards of most households is continuing

Food prices still are still running 12.5% higher from a year earlier.

The pace of consumer prices is cooling, but increases in wages are failing to keep pace and suggest the financial squeeze on many Irish households will not lift any time soon. 

New official figures show the annual headline rate of Irish consumer price inflation, at 5.4% in May, had slowed from 6.3% in April.

However, food prices still were still running 12.5% higher from a year earlier, despite energy cost inflation having eased considerably, the data also show.

Separate figures from the Central Statistics Office showed average weekly earnings rose by only 4.3% in the first three months from the same period in 2022, suggesting the squeeze on the living standards of most households is continuing.  

Average weekly wages in the economy rose to almost €923.50 from over €885.30 in the year, but the data include above-average wage increases for workers in sectors such as IT, which have large numbers of skilled vacancies. 

The May inflation figures were published by the Central Statistics Office and are based on a European Union-wide measure of consumer price inflation that facilitates comparisons across the union.

The inflation figures from the 20-country eurozone will be closely scrutinised for clues on whether the European Central Bank will continue on its aggressive cycle of hiking interest rates when it next gathers for a key meeting in two weeks.  

The European Central Bank pays particular attention to the big eurozone economies such as Germany, France, and Italy and to so-called core inflation readings, which exclude energy and food prices from the calculations, in deciding on the path of future interest rates.

But the latest figures point to a policy headache for the European Central Bank as it picks a path because food price inflation remains at elevated levels across Europe, and is failing to cool as fast as the prices of other consumer goods and services.   

Ireland's 5.4% headline rate for May is lower than the closely-watched headline rates of 6.3% in Germany, the 6% reading in France, and the 8.1% rate in Italy, but is much higher than Spain's 3.2% rate, and Portugal’s 4%.      

The latest EU-wide inflation figures also suggest the huge drop in wholesale gas prices in recent months is having some effect in cooling the prices of energy bills for European households. 

In Ireland, consumer energy prices fell by over 3% in May from April, but were still almost 2% higher than in May 2022. The drop in European wholesale gas prices tumbled through May and suggest there are still significant falls in utility bills in the pipeline, if energy suppliers pass on the reductions in full to Irish households.