Irish Inflation Set to Rise to 3.2% as Iran Conflict Impacts Energy Prices
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 Iran. The Economic and Social Research Institute (ESRI) issued the forecast, warning that a prolonged conflict in the Middle East could lead to price increases across a broad range of goods and services and dampen overall economic activity.
Economic Growth to Gradual
The ESRI also predicts a slowdown in domestic economic growth, forecasting a rate of 2.1% for 2026, a significant decrease from the 4.9% growth experienced in the previous year. This deceleration is directly linked to the inflationary pressures exerted by the geopolitical situation in the Middle East. [Source: RTÉ]
Government Energy Tax Cuts Criticized
While the Irish government recently implemented cuts to excise duty on fuel, the ESRI has criticized these measures as poorly targeted. ESRI research professor Alan Barrett noted that the reductions primarily benefit higher-income households due to their greater consumption of fuel, such as in larger vehicles and homes. He stated that untargeted measures result in approximately 50% of the cost going to the top 40% of households by income, reducing the capacity to support those most in demand. [Source: RTÉ] The extension of the fuel allowance, although, was acknowledged as being focused on the most vulnerable.
Housing Supply Concerns Persist
The ESRI reports that 37,400 homes are expected to be completed in Ireland in 2026, with a projected increase to approximately 38,000 in the following year. [Source: RTÉ] However, the think tank emphasizes that annual completions need to approach 50,000 units to meet national housing targets. The government aims to build 300,000 homes between 2025 and 2030, but the ESRI expresses skepticism about sustaining upward momentum in housing output. [Source: RTÉ]
Construction Inflation a Growing Threat
The ESRI has also warned that the Iran conflict could lead to construction inflation, potentially hindering the building of new homes. [Source: The Journal.ie] This concern is compounded by questions about the economy’s capacity to deliver on numerous infrastructure projects within a limited timeframe, highlighting the need for government prioritization. [Source: RTÉ] Energy price spikes, exacerbated by the war in Iran, are the main driver in the upward pressure. [Source: The Journal.ie]
Impact of Iran Crisis on Oil Prices
The ESRI anticipates that prolonged disruptions in the Strait of Hormuz will significantly increase oil and gas prices, creating uncertainty and negatively impacting economic activity through both investment and consumption. [Source: The Irish Times] Even a swift resolution to the conflict is expected to have a lasting impact on prices. [Source: The Irish Times] The ESRI has revised its inflation expectations from an initial 2.1% in 2026 to 3.2%, with price hikes in gas and oil expected to bleed into other sectors such as construction. [Source: Irish Examiner]
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