Inflation is likely to jump to between 3.5% and 4% in March and April – up from 2.7% in February – driven by the sharp rise in energy prices, Bank of Ireland says.
In a research note, the bank’s chief economist Conall Mac Coille said that the “enormous” 70% to 80% rise in home heating oil prices will add between 0.6% and 0.7% to inflation alone, while the increase in petrol and diesel costs will add 0.5% to the increase in the cost of living.
The surge in energy will also impact on cost of living in relation to prices of food and other items, he noted.
The economist also noted that higher energy prices may impact negatively on general consumer spending as Irish households may alter spending to account for elevated fuel costs – with the forecast for a 2.3% increase in consumer spending likely to fall back by 2% as “pressures on real income” grow.
Mr Mac Coille said that “Over the weekend, Government figures have indicated a cut in excise duty is likely”, but cautioned that there was an “enormous degree of uncertainty” regarding events in the Middle East and the impact on prices.
The European Central Bank and Bank of England are set to announce three interest rate increases this year, he noted, starting April 30th – with the main ECB rate expected to climb from 2% to 2.75%.
The crisis in the Middle East had led to stock markets and bond markets pricing in the likelihood of more sustained disruption to oil supply, he said, with a subsequent increased cost in borrowing for borrowing for European countries, including Ireland.
The yield – the costs of borrowing – on 10-year Irish Government bonds has now risen from 3% in January to 3.35%, he noted.
Separately, the Construction Industry Federation’s Outlook Survey has found that rising costs are a concern and that surging oil prices could “further accelerate cost increases” in the sector.
The survey found that 79% of the companies surveyed reported a year-on-year increase in the cost of raw materials during the fourth quarter of last year – with 77% expecting that cost to continue to increase during the first three months of 2026.
Those concerns, captured in the survey of 200 construction companies, was carried out between 30 January and 24 February, before the Middle East conflict escalated and the current surge in oil prices.
CIF chief executive Andrew Brownlee said there is a “renewed concern across the Irish construction industry” regarding the volatility caused by the war and its impact on global markets and the cost of construction materials and fuel.
“The scale and speed of the oil price spikes since the outbreak of war on 28 February are deeply alarming for the industry,” he said.
Mr Brownlee pointed out that fuel costs impact strongly on the industry.
“It underpins the manufacture and transport of construction materials and is a fundamental day to day business cost.
“As a small island economy, transportation and logistics form a major component of our material costs, so shocks of this magnitude have an outsized impact on construction project viability,” he added.
“Our members are seriously concerned about what these escalating fuel prices mean for project delivery, contract management, and the pipeline of work.
“Navigating these price shocks will require careful cost management and ongoing monitoring of supply chain pressures in the weeks ahead,” he said.