Central Bank: Government's budget plans will add to short-term inflation

The bank is also expecting growth rates in the economy to slow further as capacity constraints become more of an issue

The Central Bank is forecasting inflation to average out at 5.4% this year and drop to 3.2% next year. Photographer: Jason Alden/Bloomberg

The Government's “expansionary” budget plans will “amplify demand” in the economy and contribute to inflationary pressures, the Central Bank of Ireland has warned.

In advance of the budget next month, Finance Minister Michael McGrath has said there would be €6.5bn worth of new measures with €5.25bn going to extra expenditure and €1.15bn in tax cuts. Additional funding for once-off measures are also expected.