Irish Inflation Set to Rise to 3.2% as Iran Crisis Fuels Energy Costs
Ireland’s inflation rate is projected to increase to an average of 3.2% in 2026, up from 2.2% in 2025, driven by rising energy prices stemming from the ongoing conflict in the Middle East, particularly related to the situation in Iran. The Economic and Social Research Institute (ESRI) issued the warning in its latest quarterly bulletin, also criticizing recent government interventions aimed at easing the burden on consumers.
Energy Prices and Broader Economic Impact
The ESRI forecasts that a prolonged conflict in the Middle East, leading to sustained higher energy costs, will result in price increases across a wide range of goods and services. Disruptions in the Strait of Hormuz, a critical waterway for oil and gas transport, are expected to put significant upward pressure on energy prices and create economic uncertainty. This is likely to dampen economic activity through reduced investment and consumer spending.
Government Fuel Excise Cuts Deemed Untargeted
The Irish government recently announced cuts to excise duty on fuel in an attempt to mitigate the impact of rising prices. However, the ESRI has criticized these measures as poorly targeted, arguing they disproportionately benefit higher-income households. According to ESRI research professor Alan Barrett, approximately 50% of the benefit from such untargeted measures goes to the top 40% of households by income. This contrasts with more focused interventions like the extension of the fuel allowance, which is aimed at those most in need.
Economic Growth to Slow
The ESRI predicts that the Irish economy will experience slower growth in 2026, with an expansion rate of 2.1%, down from 4.9% in the previous year. However, the institute anticipates continued growth in both 2026 and 2027, supported by a strong labor market and increased household spending. These forecasts are subject to revision based on the evolving situation in Iran.
Housing Supply Concerns Persist
Despite a rise in new dwelling completions to over 36,000 last year, the ESRI warns that maintaining upward momentum in housing output will be challenging. The institute expects approximately 37,400 homes to be completed in 2026 and 38,000 in 2027, falling short of the roughly 50,000 units needed annually to meet national housing targets. potential construction inflation linked to the Iran crisis could further hinder the building of new homes.
Infrastructure Prioritization Needed
The ESRI also raised concerns about the economy’s capacity to deliver on numerous infrastructure projects within a limited timeframe, emphasizing the need for prioritization. This concern is amplified if the Iran crisis leads to increased construction costs and continued tariff-related uncertainty.
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