Irish central bank lowers 2023 inflation forecast to 5%

DUBLIN, March 8 (Reuters) – Ireland’s central bank sees inflation growing at a slower than previously forecast 5% this year before falling towards 2% by 2025 when core inflation is expected to be higher than the headline rate.

Annual Irish inflation, as measured by the Harmonised Index of Consumer Prices (HICP), has fallen to 8% from a high of 9.6% last July, primarily due to lower energy prices but also slower growth in prices charged by the services sector.

The central bank on Wednesday cut its forecast for 2023 HICP growth from the 6.3% predicted in October and sees price growth slowing to 3.2% in 2024 and 2.2% in 2025, when core inflation of 2.6% would pass out the headline rate.

It added, however, that a significant amount of uncertainty remained around the precise path for inflation, and the extent to which underlying inflation measures will remain elevated.

The central bank also nudged up its forecast for domestic economic growth for 2023 after activity late last year and early this year was “somewhat stronger” than expected, while the global economic backdrop proved more benign.

Modified domestic demand (MDD), officials’ preferred measure of economic growth, is now forecast to rise by 3.1% this year after it expanded by 8.2% thanks to a post-lockdown investment boom last year.

While higher prices caused real average household disposable income to fall slightly in 2022, the bank now sees real incomes growing by more than 2% in each of the next two years, supporting consumer spending of more than twice that level.

The jobless rate is also set to remain near record lows for the next three years, spurring average wage growth of 6.5% this year that the bank expects to moderate to 3.3% in 2025 with no nascent sign of a wage-price spiral emerging.

After Ireland produced one of the few budget surpluses in Europe last year, the central bank significantly increased the degree to which that would increase. It sees a surplus of 2.7% of gross national income this year, rising to 4.8% or 15.8 billion euros in each of the following two years.

(Reporting by Padraic Halpin; Editing by Lincoln Feast)