Dublin: Ireland’s Central Bank has revised its inflation forecasts once again, warning that inflation could rise to as much as 5% next year under a severe scenario, placing renewed pressure on households already grappling with rising living costs.
The Central Bank said higher energy prices could significantly impact household incomes, weaken consumer confidence, and intensify cost-of-living challenges across the country. It also noted that, after accounting for inflation, average wage growth is expected to be just 0.5% this year, meaning many workers may see little real improvement in their purchasing power.
According to the bank’s latest projections, inflation is expected to average 3.5% in 2026 before easing to 2.9% in 2027. However, officials cautioned that ongoing geopolitical tensions and energy market disruptions could push prices considerably higher.
Robert Kelly, Director of Economics and Statistics at the Central Bank, said uncertainty surrounding the Strait of Hormuz and global energy supplies remains a major concern. He explained that even if the current conflict is fully resolved, restoring disrupted supply chains would take time, prolonging inflationary pressures.
Despite these risks, the Central Bank expects the domestic economy to continue growing at a moderate pace, forecasting growth of 3.3% this year and 2.8% in 2027.
The bank also echoed concerns raised by the Irish Fiscal Advisory Council regarding government spending. It warned that Ireland’s public finances are becoming increasingly dependent on corporation tax receipts from multinational companies, a revenue source that remains uncertain over the long term.
Officials estimate that corporation tax revenues could fall to €25.7 billion by 2030, potentially reducing fiscal buffers and limiting the state’s ability to respond to future economic shocks. The report noted that government spending growth has consistently exceeded budget projections over the past five years and is now operating above sustainable levels.
While employment growth is expected to continue, the pace of job creation is forecast to slow over the coming years.
Kelly stressed that vulnerable households will require additional support if inflationary pressures intensify. He warned that increases in petrol and diesel prices are likely to feed quickly into the wider economy, with some cost pressures already becoming evident.
The Central Bank estimates that average households may experience real wage growth of around 0.5%. However, if inflation rises to 5% next year, households would face a significant reduction in spending power, effectively wiping out the benefits of current wage increases.
“If inflation accelerates further, households could find themselves moving backwards financially rather than making progress,” Kelly cautioned.
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