Inflation here could hit 10 percent before the summer is over as Russia halts gas supplies to Europe, workers demand wage increases and price increases are anchored in the service sector of the economy.
Annual inflation in Ireland was unchanged from June at 9.6 percent in July, itself a 38-year high.
Figures from the Central Statistics Office show that Irish energy prices fell 1.6 per cent compared to June but are up 50.4 per cent year-on-year.
“It still means there is upward pressure in the system,” said Goodbody economist Shaun McDonnell. “I think the annual flat rate might be the least bad news.
“That is our own expectation [the annual rate of inflation] Tips around 10pc in August. I would not rule out a rate of over 10 percent before the end of the year.”
Headline inflation in the euro zone also rose, to 8.9 percent in July from 8.6 percent in June, well above economists’ expectations of an 8.6 percent rise. Worse could well be ahead as Russian President Vladimir Putin turns off the gas taps.
“You’re seeing the trickier elements of inflation starting to accelerate,” Mr. McDonnell said.
“It’s accelerating across Europe, which is worrying as it tends to persist more than your energy and food sectors as the service sector is labour-intensive.”
Inflation is now in double digits in 10 eurozone countries – including Spain and the Netherlands, two of the bloc’s largest economies – and is above 20 percent in the Baltic countries.
Belgium, Greece, Italy, Luxembourg and Finland recorded a slight slowdown this month.
ING analyst Raoul Leering forecasts that energy costs will not rise as quickly over the next year, while a sharp drop in wages and purchasing power will weigh on consumer demand and hence inflation.
The European Central Bank’s interest rate hike of 0.5 percent should not have any major impact on prices until next year.
“While they have raised interest rates, they have done so much later than they should have. You were behind the curve. It’s having a delayed impact on the real economy,” McDonnell said.
Meanwhile, despite more upbeat second-quarter GDP growth data from some of the bloc’s major economies, the risk of a euro-zone recession is rising, as growth in France and Italy offset disappointing reads from Germany.
Much of the growth spurt came from the service sector.
ING analysts are now forecasting a “mild recession” in the second half of the year.
“We expect GDP to continue its downward trend as the reopening of services weakens, global demand weakens and purchasing power holds,” said the euro-zone’s chief economist Bert Colijn.
The US slipped into a technical recession this week after second-quarter growth slumped 0.9 percent after contracting in the first three months of the year.
Irish growth will hold up this year and next on strong multinational exports, although investment will slow by more than half next year, according to group Ibec.
But unemployment is still low – in Ireland, the US and the eurozone – and vacancies are rising.
https://www.independent.ie/business/irish/double-digit-inflation-is-heading-our-way-as-gdp-growth-slows-down-41878114.html Double digit inflation is heading our way as GDP growth slows