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Ireland inflation rate: Price rises slow after summer highs, but upside pressure remains despite ECB’s aggressive stance

By Fitri Wulandari

Edited by Jekaterina Drozdovica

17:21, 31 October 2022

Magnifying glass focused on the word inflation on Ireland flag background
Price rises in Ireland slow after summer highs, but upside pressure remains despite ECB’s aggressive stance. Photo: lunopark / Shutterstock

Autumn has brought a respite to Ireland’s inflation rate. After peaking at 9.1% in June and July, inflation in Ireland dropped to 8.2% in September.  

The rate of price growth was still well above the 2% inflation target despite the European Central Bank’s (ECB) aggressive stance to curb inflation. 

As winter approaches, cooling inflation may heat up again amid concerns about gas supply. What will be Ireland's inflation rate outlook for 2022, 2023 and beyond? 

What is Inflation and how is it measured in Ireland?

Inflation is defined by economists as a rise in the prices of goods and services. It also reflects the decline in money's purchasing power. As a result, when prices rise, consumers can buy less with the same amount of money. Loss of purchasing power raises living costs and slows economic growth.

Ireland’s Central Statistics Office (CSO) calculates the country’s inflation rate indicated by the Consumer Price Index (CPI). Since December 2016, the country’s CPI basket has had 615 individual goods and services divided into these 12 classifications: 

  • Food and Non-Alcoholic Beverages 

  • Alcoholic Beverages and Tobacco 

  • Clothing and Footwear

  • Housing, Water, Electricity, Gas and Other Fuels

  • Furnishings, Household Equipment and Routine Household Maintenance 

  • Health 

  • Transport 

  • Communications 

  • Recreation and Culture 

  • Education

  •  Restaurants and Hotels 

  • Miscellaneous Goods and Services

Each month, approximately 50,000 price quotations of 478 items are collected in 84 locations. The CSO collects 3,000 prices from the remaining 137 items.

As a member of the European Union, Ireland also calculates Harmonised Indices of Consumer Prices (HICP), which are used by the European Central Bank (ECB) to measure inflation in the euro area. The country’s inflation target follows ECB’s inflation target of 2%. 

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From deflation to sky-high inflation: Ireland inflation rate history

Ireland experienced deflation for the majority of 2020 as Covid-19-control measures slowed economic activity. Restriction hit the country's retail sector the hardest, with the cost of transportation, clothing, footwear, and communications falling the most.

From January to February 2020, inflation rate in Ireland was still above 1%, easing to 0.7% and entering deflation in April with prices falling by -0.1%.

Ireland’s inflation rate, 2018 - 2022

Prices continued to fall with the sharpest decline in October 2020 at an annual rate of 1.5% and went on until February 2021 before steadying in March 2021, according to CSO’s Ireland inflation rate history. 

By April 2021, Ireland inflation rate started to uptick, rising by 1.1%  and hitting 2.2%, exceeding  the inflation target in July 2021. In December 2021, inflation readings in Ireland had accelerated at annual pace of 5.5% and 5.7% for CPI and HCPI. 

Rising domestic demand as the country emerged Covid-19, the lingering supply chain bottleneck and constraints in the labour market had led to the surge in consumer prices, according to the Central Bank of Ireland’s (CBI) in its fourth-quarter bulletin. At that time, the country’s central bank viewed the causes of inflation as temporary.

The ECB maintained its zero policy rate over 2021 which had been unchanged since 2016, despite rising inflation in the euro area. 

Ireland's inflation rate briefly slowed in January 2022 at 5%, before surging to 5.6% in February following Russia's invasion of Ukraine which sent commodities prices to multi-year highs. Ireland's inflation rate peaked at 9.1% in June 2022. It remained at that level until July, before gradually dropping to 8.2% in September.

High energy prices boost Ireland inflation rate

Rising energy costs have remained the main reason for high inflation rate in Ireland. In September 2022, the cost of housing, water, electricity, gas and other fuels went up 20% year on year, while transport rose 11.3% in the year, according to CSO.

In terms of annual increase, the cost of housing, water, electricity, gas and other fuels with electricity was 36.2% higher than a year ago. Gas prices rose 53.1% year-over-year (YoY), liquid fuels (home heating oil) jumped 83.8% and solid fuels increased 32.5%. 

Europe has been swept by an energy crisis compounded by the war in Ukraine. Countries have struggled to contain runaway energy prices. The European gas price has repeatedly reached new highs as Russia reduced gas deliveries to the continent in response to Western sanctions. 

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According to CBI, natural gas accounts for roughly half of Ireland's electricity generation. As a result, increases in the price of gas will be reflected in the retail price of electricity as well as gas for home heating.

Meanwhile, housing, water, electricity, gas and other fuels combined have the biggest share in Ireland’s CPI basket. 

Weakening Euro

The euro (EUR) has been under-pressure as rising inflation across Europe clouded the continent’s economic growth outlook. 

The euro to US dollar (EUR/USD) exchange rate fell to $0.95892 on 27 September, its lowest level of the year so far. It briefly traded around parity on 4 October and 25 October, but mostly the pair was trading below.

EUR/USD exchange rate

As of 31 October, EUR/USD traded around $0.99342 on expectations that ECB will slow the interest rates hiking cycle due to deteriorating economic growth outlook amid persistently high inflation and the energy crisis, Trading Economics said. The currency pair has dropped more than 14% in one year. 

A weakening euro could put upward pressure on prices as many commodities, including coal and liquefied natural gas (LNG) – LNG has become Europe’s alternative gas source – are denominated in US dollars. It means import bills will be more expensive which could further erode consumers’ purchasing power.

According to the CBI quarterly bulletin of July 2022, Ireland sourced 45% of its energy supply from oil, 34% from gas and 13% from renewables. The country imported all its oil consumption and three quarters of its gas needs. 

Ireland inflation forecast: Target for 2022 and beyond

In October, the Central Bank of Ireland revised up its forecast for Ireland inflation rate for 2022 – indicated in the HCPI – to 8%, from 7.8% in its forecast in July 2022, reflecting higher natural gas prices which could boost electricity and heating costs.

“There are also strong indirect effects, as non-energy firms facing significant energy price increases pass these costs on to consumers. High levels of uncertainty in this key assumption therefore imply high levels of uncertainty about the inflation forecast overall,” the country’s central bank said in its fourth-quarter bulletin, referring to the revised Ireland inflation forecast. 

Ireland's expected inflation was seen easing to 6.3% in 2023, falling further to 2.8% in 2024, CBI predicted. 

The CBI warned of upside risks in inflation and downside growth forecast if the protracted war in the Ukraine intensified or a further deterioration in energy or food. The bank said:

“Given recent developments in the UK, a less favourable growth path there would have slightly negative implications for the growth forecast, while a larger appreciation of the euro vis-a-vis Sterling would imply weaker inflation.”

The European Union in its Summer economic forecast expected Ireland inflation rate to average 7.3% in 2022, cooling to 3.3% in 2023. 

Daniela Hathorn, Capital.com’s senior analyst said:

“Energy goods and food continue to lead the increases but inflationary pressures are spread across all product sectors. The issue is that governments have started spending to keep energy prices from soaring and that will increase their deficit, which will keep inflation higher. With the ECB sounding more dovish than expected at their latest meeting, long-term inflation expectations are unlikely to remain at 2%.”

Trading Economics Ireland inflation predictions saw the pace of price rises in Ireland at 7.70% by the end of fourth quarter 2022. The data aggregator’s Ireland inflation rate for 2023 expected the country’s inflation to plummet to 3% in 2023 and 2.3% in 2024.

ING Group’s Ireland inflation rate forecast predicted inflation to ease to average 4.6% in 2023 and 2.1% in 2024, from a projected 8.3% in 2022.

Final thoughts on Ireland inflation

Analysts mentioned in this article expected the inflation rate in Ireland to remain elevated in 2022, before sharply falling in 2023 and 2024 as energy prices were expected to decline. 

Keep in mind that analysts’ predictions can be wrong. You shouldn't use them to substitute your own research. Always perform your own due diligence before trading. And never trade money that you cannot afford to lose.

FAQs

What is the current inflation rate in Ireland?

The annual Ireland inflation rate stood at 8.2% in September 2022.

Is inflation going up in Ireland?

The inflation rate in Ireland has eased but remained way above the inflation target of 2% as of October 2022.

Is there a recession coming in Ireland?

ING Group noted in July that there were few signs of imminent recession in Ireland’s economy following weaker economic performance in the second quarter. The bank expected Ireland’s economy to grow 1.8% in 2023 and 1.3% from the estimated 9% in 2022. Note that analyst predictions can be wrong.

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You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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