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Ireland’s inflation rose to 3.2% in November as unfavourable base effects continued to push up the headline figure. Fortunately, their influence will fade from December because this data will drop out of the annual comparison. We expect inflation to drop to around 2.6% in December and average 2.3% in 2026. However, the tight labour market, robust domestic growth and infrastructure shortages will keep domestic inflationary pressures elevated.
Ireland’s inflation ticks up again in November
As we expected, inflation rose to 3.2% y/y in November, up from 2.9% y/y in October. The rise takes the rate to its highest level since March 2024.
Energy inflation, at 3.3% y/y from 2.9% y/y in October, drove the rise. The measure is now firmly positive after being negative back in August. Some of November’s increase is driven by base effects. For example, electricity inflation jumped to 5% from 3.7%, despite prices being flat on the month because prices were falling this time last year. Heating oils and petrol prices rose strongly on the month driving up liquid fuel inflation as oil prices rose sharply at the end of October. Additionally, rising pump prices are likely in part due to firms continuing to pass on the latest carbon tax increase to consumers.
Airfares also surged to -0.7% y/y from -7.0% y/y − despite falling on the month − as last November’s huge drop wasn’t repeated. That helped drive services inflation up to 4% y/y − the highest since March 2024. Indeed, sticky restaurant and hotels inflation has started to rise again. This reaffirms our view that domestic inflation will remain stubborn in 2026.
The good news is that food price inflation has dropped to 4.3% y/y from 4.5% y/y. The recent rise in agricultural commodity prices has probably peaked and a stronger euro is helping to weigh on the cost of imports.
All told, unfavourable base effects continued to push up inflation in November. Fortunately, inflation will fall sharply in December because more favourable base effects will help to bring down inflation.
Inflation will be back below 3% next month
Looking ahead, Ireland’s inflation has now peaked and should drop comfortably to around 2.6% in December. The sustained strength of the euro will probably continue to help suppress inflation for the next few months. What’s more, movements in financial markets, which are a good guide to what we can expect to pay in the months ahead, suggest prices should fall over 2026. This will help to dampen the recent rise in energy inflation.
However, the outlook for domestically generated inflation is stronger. Despite its recent weakening, the labour market remains tight by historical standards, which will push up wages. Infrastructure shortages, especially in housing, will also continue to put upwards pressure on inflation. Indeed, the domestic economy grew 2.3% in Q3 thanks to strong government spending, which will continue into next year. This picture of a robust domestic economy and infrastructure shortages means we can expect services inflation to average around 3% in 2026.
Overall, we expect inflation to fall back next month as more favourable base effects help to bring the headline figure down. Looking ahead to next year, we think inflation is likely to average 2.3% as sticky services inflation prevents inflation from falling further.
