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Inflation in Ireland continued to pick up in April, rising to 2.2% from 2% in March, driven by higher services inflation. We think the risk remains weighted towards inflation accelerating further, but the knock-on effects of US tariffs will help to take the sting out of domestic inflationary pressures as growth slows.
What’s driving inflation?
Recreation and culture drove April’s inflation rise, increasing by 4.2% y/y from a modest 0.2% y/y in March. Demand for package holidays, which saw prices rise 10.1% on the year, remained robust despite ongoing uncertainty across the global economy.
Across services as a whole, stubborn inflation continues to push up the headline numbers. Restaurant and hotels inflation stayed well above 3%. That alone added around 0.7ppts to the headline figure.
Services inflation looks unlikely to weaken anytime soon thanks to an incredibly tight labour market. With wage growth at 5.6%, we expect the labour market to continue to be a source of inflationary pressure going forward. That said, clothing provided some relief, knocking 0.1ppts off the headline figure thanks to extended discounting by retailers.
Risks tilted to higher inflation
Inflation has picked up quickly in 2025, having been just 1.4% y/y in December. In fact, prices have increased 2% since January alone according to the headline Consumer Price Index (CPI). That could prove a problem for the Irish economy because not only is wage growth incredibly strong, but the European Central Bank (ECB) will also likely compound that rise in inflation with further interest rate cuts this year to support a slowing eurozone in the face of tariffs. Ireland’s economy is far hotter and has outperformed the eurozone significantly recently. Further rate cuts would risk pushing the economy into overheating.
The impact of tariffs and uncertainty
Tariffs will prompt a slowdown in growth across the EU and Ireland directly and, more impactfully, through the surge in uncertainty. Both could create some slack in the labour market, which would feed through into slower wage growth and domestic inflation easing.
One key area of focus for tariffs will be pharmaceuticals. Exports of medical and pharmaceutical products made up 45% of Ireland’s goods exports in 2024. Any enactment of Donald Trump’s threats to bring them under tariff arrangements would cause a more material slowdown in growth and inflationary pressures.
Ultimately, we still think risk is weighted towards inflation accelerating further. This despite the recent appreciation of the euro, which will make imports cheaper. As well as the uncertainty from tariffs, which will no doubt lead to a swifter easing of domestic inflationary pressure, we think the labour market is still incredibly tight and wage growth is far too strong to support 2% inflation. Additionally, the ECB will cut faster than they otherwise would have done in the face of tariffs to support bigger economies such as Germany.
All of this points to inflation heading towards 3% in the near term.
