Inflation: further to rise next month, but fall ahead

Ireland’s rate of inflation rose to 2.9% in October, the highest since March 2024, and up from 2.7% in September. This was largely due to higher fuel inflation and an increase in third-level education fees. Inflation will stay around 3% in November before falling back towards 2.5% as unfavourable base effects drop out of the annual comparison. 

What’s driving Ireland’s inflation?

The details in the latest data suggest that October’s inflation-rate jump to 2.9% was driven by rising fuel inflation, which rose to 3.4% y/y from 0.3% previously. This partially reflects the Budget 2026 increase in carbon tax coming into effect in October for auto-fuels.

What’s more, education inflation soared to 8.4% y/y from 2.3% previously. This is because many students effectively faced increased fees as the government’s temporary €1,000 cut was replaced with a permanent €500 reduction.

The good news is that food inflation fell again. It’s now at 4.5%, down from 4.7%, which is offsetting some of the rise in headline inflation. Tobacco inflation also helped here, falling sharply as the government opted for a smaller hike to excise duty of €0.50 compared to last year when excise duty rose by €1.

All told, headline inflation continues to overstate inflationary pressures in the economy as unfavourable base effects push up the measure. However, the labour market is operating at full employment and infrastructure shortages could mean inflationary pressures rise going forward.

When will Ireland’s inflation rate come down?

Looking ahead, we think Ireland’s rate of inflation will probably rise again in November before falling back at the end of the year as unfavourable base effects drop out of the annual comparison.

A few other factors will also be in play. First, global commodity prices suggest that the recent food price surge has probably peaked. Second, a stronger euro will help to weigh on import prices, therefore restraining inflation in the coming months. Finally, US tariffs will help to put downward pressure on global demand and continue to impact sentiment, which is dampening inflation through weaker growth.

However, the outlook for domestically generated inflation is stronger. The economy is increasingly likely to come up against supply-side constraints, like a tight labour market and infrastructure shortages, especially in housing. Here, there’s clearly a risk that strong domestic growth starts to outpace the rate at which the supply-side of the economy can grow. Indeed, this is the main reason why we expect services inflation to average around 3% in 2026.

Overall, we expect inflation to rise further in November as unfavourable base effects continue to push up the headline measure. Looking ahead to next year, we think inflation is likely to average 2.3%.