Inflation could peak at 8.5% this summer: ESRI

The Economic and Social Research Institute has lowered its forecasts for growth in the economy this year and increased its outlook for inflation as a result of the ongoing war in Ukraine.

In its latest Quarterly Economic Survey, the ESRI said inflation could peak at 8.5% this summer before averaging out across the year at 6.7%.

The average 6.7% inflation rate forecast for this year by the ESRI would be the highest annual rate since 1984.

The Russian invasion of Ukraine will have a negative impact on global economic activity and is making inflationary pressures, which were already building, even greater.

The ESRI also warns that its latest forecasts for the economy are highly uncertain with big downside risks due to the ongoing war.

It has pared back its forecast for growth in the economy this year to 6.2%.

But even given all of the uncertainty, the ESRI still believes there will be a small surplus in the public finances for the first time in three years.

However, inflation poses a serious problem with disposable incomes likely to fall on average by between 2-3% as wage increases are overtaken by higher prices.

It believes more measures to protect those on lower and fixed incomes may be necessary.

The think-tank also said that if the Government chooses to use it, the Covid contingency fund would provide some cushion against inflation and provide for humanitarian assistance to those fleeing the war in Ukraine.

The war in Ukraine has led the ESRI to reduce its forecasts for economic growth this year to 6.2% in GDP terms and 5% when measured by Modified Domestic Demand.

This compared to a forecast in its Winter Quarterly in December of 7% growth in GDP and 7.1% growth in MDD.

Inflation had been forecast to average at 4% this year, but that has been revised upwards to 6.7% with a possible peak of 8.5% in June or July.

News source: RTE

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