More price rises on the way later this year - ESRI

The Economic and Social Research Institute (ESRI) has warned of "second-round effects" on prices later this year as a result of higher energy costs.

In its latest Quarterly Economic Commentary, the ESRI said there is typically a nine-month lag between increases in fuel and food prices, suggesting even higher grocery bills in the autumn and winter.

Lower and middle income households may require support but this should be temporary and targeted, according to the institute.

It has revised upwards its forecasts for inflation to 3.7% for 2026 and 3.1% for 2027.

The ESRI also upgraded its forecast for economic growth, as measured by Modified Domestic Demand, to 2.6% for 2026.

The upward revision is linked to stronger than anticipated investment on the back of stronger housing output and rising investment in technology equipment related to artificial intelligence and data centres.

"International headwinds are strong; fossil fuel prices remain elevated, and uncertainty remains around the conflict in the Middle East," said report author Professor Conor O'Toole.

"These higher prices are likely to raise consumer prices in Ireland this year and next to a greater extent than previously anticipated," Mr O'Toole said.

Fuel support package

In its assessment, the ESRI described the fuel support package that followed protests earlier this year as "poorly targeted", and said the structure of the supports was "disappointing".

According to the report, the ready availability of revenue, and hence the weakened budget constraints, along with intense political pressure, provided conditions for sub-optimal policies.

The ESRI said that upcoming public sector pay talks provide the next setting in which this mix of readily available funds and political pressure will apply.

"In that context, it is important that the upcoming public sector pay talks are based on a clear understanding of the public finances vulnerabilities," said report author Professor Alan Barrett.

Housing

The ESRI has revised its annual forecast for housing completions up to 38,500 for 2026 and 40,500 for 2027.

"However, the absence of sustained upward momentum in planning permission figures presents a challenge to raising output substantially and meeting housing targets in the medium term," the report states.

"Given the failure to meet housing targets in the recent past and the expectation of continued shortfalls relative to demand, the housing deficit will continue to grow," the ESRI said.

Labour market

The ESRI's outlook for the labour market remains broadly positive and the report authors say they expect unemployment to remain low.

However, the commentary analyses research on the possible impact of artificial intelligence on the Irish labour market.

"These studies point to considerable numbers who could be negatively impacted, highlighting the need for close attention to this area," the report concludes.