Sun, 10 Dec 2023

DUBLIN, Ireland: The Central Bank has cautioned the Irish government about the potential for stoking inflation with its forthcoming budgetary measures.

While Ireland's inflation outlook remains unchanged from June 2023, the Central Bank has raised concerns that the government's planned stimulus in next month's budget could further elevate prices and prolong inflationary pressures.

In its recent announcement, the Central Bank increased its 2023 inflation forecast, measured by the Harmonised Index of Consumer Prices (HICP), from 5.3 percent to 5.4 percent. However, it slightly reduced its projections for 2024 and 2025 to 3.2 percent and 2.5 percent, respectively.

This keeps Ireland broadly aligned with forecasts for the eurozone. Notably, the Central Bank anticipates that core inflation in Ireland, excluding unprocessed food and energy prices, will remain at 2.7 percent in 2025.

The Central Bank also emphasized that inflation risks are more pronounced than in June, underscoring the need for caution in fiscal policies.

Despite these warnings, the government has signaled its intention to increase core public spending by 6.1 percent in the coming year, surpassing its own budgetary rule of capping expenditure growth at 5 percent for the second consecutive year. Additionally, the government plans to introduce additional one-off fiscal supports to alleviate the burden of rising living costs.

"This would amplify demand in an economy already operating at capacity and risks leading to inflation being higher in Ireland for longer than would otherwise be the case," the Central Bank said of the one-off measures.

Furthermore, the Central Bank lowered its wage growth forecasts for 2025, citing signs of moderation in labor demand. Job postings in August were 25 percent above pre-pandemic levels, down from a recent peak of 54 percent. Year-on-year wage growth for these jobs also slowed to a 15-month low of 3.8 percent.

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