Irish inflation reaches 8.2% in May, estimates Eurostat

New figures from Eurostat have forecast that Ireland’s Harmonized Index of Consumer Prices measure of inflation has risen to 8.2% in May from 7.3% in April, higher than the euro zone average.

Energy prices in Ireland are estimated to have risen 6.7% in the month and 46.2% since May 2021.

The CSO will publish the main inflation figures for May next week.

Today’s latest flash reading from Eurostat also shows that euro zone inflation rose to another all-time high of 8.1% in May.

This will challenge the European Central Bank’s view that gradual interest rate increases from July will be enough to tame stubbornly high price growth.

Inflation in the 19 countries sharing the euro accelerated to 8.1% in May from 7.4% in April, beating expectations of 7.7% as price growth continued to widen, indicating that it is no longer just energy that drives up the headline figure.

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Prices have risen sharply across Europe over the past year, initially because of supply chain problems after the pandemic, and then because of Russia’s war in Ukraine.

This suggests that a new era of rapid price growth is ending a decade of ultra-low inflation.

Although headline inflation is now four times the ECB’s 2% target, ECB policymakers may be more concerned about rapidly rising core prices, signaling that what was once seen as a jump transient in prices is now taking hold.

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Inflation excluding food and energy prices, closely watched by the ECB, accelerated to 4.4% year-on-year from 3.9%.

An even narrower measure, which also excludes alcohol and tobacco, accelerated to 3.8% year-on-year from 3.5% in April.



Hoping to control inflation, ECB President Christine Lagarde and Chief Economist Philip Lane have already signaled increases of 25 basis points in the ECB’s deposit rate -0.5% in July and September.

But some politicians and economists doubt this is enough, especially as core inflation shows no signs of abating.

The problem is that once high energy prices seep into the economy, inflation widens and takes hold, eventually perpetuating itself through a price-wage spiral.

While the evidence for such a trend is not yet clear, a slew of data ranging from a jump in negotiated wages to a widening in core inflation shows a growing risk.

That is why the central bank governors of Austria, the Netherlands and Latvia have said that a rate hike of 50 basis points in July should be on the table.

Klaas Knot, the head of the Dutch central bank, even argued that inflation expectations are now at the high end of what could still be classified as anchored, indicating that households and investors may soon begin to doubt the determination of the ECB to control price growth.

The ECB is due to meet next on June 9, where it will formally end a scheme of bond purchases at the end of June and continue to signal rate hikes.

In a statement today, the CSO said six of the 19 euro zone countries had a lower annual increase than the 8.2% estimate for Ireland, while 12 countries had higher rates.

Estonia had the highest estimated annual inflation at 20.1%, while Malta had the lowest at 5.6%.

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