Inflation has hit Irish wallets — but wage rises help us stay ahead
Irish families are still juggling elevated prices of everything from energy to groceries in the wake of the cost-of-living crisis. Picture: iStock
With most people preoccupied with post-Christmas returns to school and work last Tuesday, few batted an eye at an announcement by the Central Statistics Office (CSO) that morning on the latest estimate for something called the Harmonised Index of Consumer Prices, or HICP.
While hardly a staple of the everyday vernacular, it is a relatively new economic signature that acts as another yardstick for measuring the cost of groceries in your shopping basket.
As a comparable measure of inflation across European countries, it serves as a sign of how healthy consumers’ wallets in Ireland are likely to be in the coming months compared to the rest of the eurozone.
In essence, it reflects change over time in the prices paid by households for a representative basket of goods and services.
While the announcement said HICP for Ireland was down to 2.7% in the 12 months to December 2025 compared to 3.1% in the 12 months to November 2025, it was still higher than the eurozone average of 2.1%.
Given Ireland’s near full employment and lack of spare capacity, at a time when Ireland is actively encouraging economic growth despite significant infrastructure deficits, there is a feeling among economists that prices will remain high in 2026, and may well even go up again.
However, there is also a feeling that, with average wages rising higher than inflation, people will — by and large — be able to absorb the extra rises.
Economist Alan McQuaid says people are still going to have to cut back on non-essentials, such as new cars and weekends away, as a result.
Mr McQuaid told the : “The underlying message from the CSO’s HICP figures on January 6 is that inflation hasn’t gone away and is still higher than desirable and probably not going to ease dramatically anytime soon.
“Inflation is going to remain higher than it has been in recent years.”
He also said the fact that no energy subsidies were announced in the last budget is a concern to people, who now also face new levies of up to €21 monthly to pay for the upgrade of Ireland’s electricity grid and network.
Economist Jim Power said: “The consumer side of the economy is becoming increasingly pressurised from the elevated cost of living following the surge in inflation back in 2020 and 2021, and energy costs.
“Food price inflation is one of the big drivers at the moment, but service sector inflation is also pretty strong for everything you look at now.
"Eating out, hairdressing — all these personal services we avail of are all becoming extremely expensive."
There was “nothing in the budget whatsoever” to help workers, Mr Power claimed.
“In fact, workers are going to see a squeeze in real disposable incomes this year because of inflation,” he said.
Dan O’Brien, chief economist of the Institute of International and European Affairs (IIEA), said that, whatever about concerns for 2026, he sees a resilience in Ireland and Europe to weather storms.
“This decade has brought the most incredible set of shocks,” said Mr O’Brien. “We had covid, we had lockdowns, then we had a surge in inflation — the likes of which we haven’t seen in 40 years — then we had an energy shock.
“Then we saw interest rates going up at the fastest rate they’ve ever gone up in monetary history. More recently, we’ve had the tariff shock, and yet — despite all this — the Irish economy has continued to grow.
“Also, the European economy has not gone into recession despite all of those things over the past six years. If you had told me in January six years ago that we were going to have all of those things, I would have said we’d now be in a depression.
“I’d be of the view there’s a lot of resilience, not just in the Irish economy, but the wider European economy in the face of all these shocks.”
Things could go wrong, Mr O’Brien cautioned.
“The idea that you’re just going to grow forever, or at least not ever have a recession again, is just not what economic history tells us.
“Domestically, I don’t see major risks there causing a recession, but what I see is capacity constraints in the economy causing a slowdown.”
He bases his optimism on the domestic front on the level of savings, bank deposits and — among other things — the amount of money people are still prepared to spend on their summer holidays.
For the latter spend, he was referencing a recent Competition and Consumer Protection Commission (CCPC) report that Irish holidaymakers spent an average of €2,473 on flights and accommodation last summer.
“In a country of 5.3m, people live in different circumstances, and clearly some people are more stretched than others,” said Mr O’Brien.
“But if you just look at how much people spent on their summer holiday per person, I would say we’re still a prosperous country.
“That’s not to say there aren’t people at the margins, on lower pay, who are struggling. That’s always the case, and it’s the case now.
“But the narrative that everyone is at the pin of their collar?
"The evidence doesn’t suggest that everyone in Ireland is spending all their paychecks and living from paycheck to paycheck.
"It continues to rise.
"If people can salt away money, then clearly there are plenty of people who are not only not living from paycheck to paycheck, but who are saving.”
Dermot O’Leary, chief economist at Goodbody Stockbrokers, believes Government spending policies are actually contributing to inflationary pressures at a time when they could be more “prudent”.
At a time of near full employment, with a rate of 5%, and little spare capacity in terms of housing and other infrastructure, he believes the Government’s plans to stimulate the economy “will lead to inflation pressures”.
Mr O’Leary said: “The lever the Government can pull should be conservative, cautious, and prudent in relation to public spending growth.
“Are they doing that? No. They’ve been spending ahead of what they planned to spend.
“This is ahead of the sustainable growth in the economy and is actually propelling economic activity even more, when it’s not required to give a stimulus to the economy.
“This has been exacerbating some of the inflationary risks and putting pressure on the capacity in the economy.
“In the absence of shocks, risks associated with the domestic inflationary environment will probably increase further over the next 12 months if the Government continues on the course that is set out.
“That means higher prices, and also property prices, whether it be rents or property prices, especially if you see a continuation of significant employment growth.”
While much is said about Ireland’s cost of living crisis nationwide, he doesn’t see one.
“Obviously, all households are not the same, so there’s different things going on, structurally and cyclically, across all sectors of the economy,” he said.
“Net wealth is at record highs, and debt relative to disposable income has fallen below the European average.
“Also the amount of money that’s been put away on a consistent basis is actually relatively high, so some of those buffers are already being built up.
“I wouldn’t say the household sector or consumers have been living beyond their means over the last number of years.
“They’ve actually been quite prudent, especially when you consider the level of household deposits. In many ways, the Irish household sector has been cautious in the last number of years.”
Grant Thornton’s chief economist, Andrew Webb, believes there is a need for continued caution in 2026.
He said that although economic growth is still strong, employment remains high and consumers are still spending, the economy is beginning to feel “uncomfortably stretched”.
“We are trying to run a fast-growing economy with too little housing, too little infrastructure, and too many bottlenecks,” said Mr Webb.
“When demand keeps rising, but supply cannot respond, prices do the adjusting instead.
“That is why services inflation, from rents and insurance to childcare and construction, has settled at a persistently higher level.
“Costs are likely to stay high, interest rates are not likely to change anytime soon, and job markets will cool.
“The sensible response is caution: Build a buffer, avoid overstretching, and plan on the basis that the next few years will be tighter than the last few.”
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