OIL PRICES ARE expected to remain “well above” those before the war in Iran throughout the rest of 2026 and 2027, researchers from the Economic and Social Research Institute (ESRI) said.
The research institute published its analysis of the domestic economy and inflationary pressures in today’s Quarterly Economic Commentary.
Among other observations, there was a focus on oil prices and how sustained high prices could further affect the rate of inflation. The ESRI revised its forecasted annual rate of inflation for the remainder of the year to 3.7%, and 3.1% for 2027.
The consequences of the closure of the Strait of Hormuz continue to impact the global economy.
It noted that although so far, price increases have been concentrated on energy, second-hand effects are expected to be felt across the rest of the year – such as rising food prices.
Irish drivers have been relatively cushioned from the realities of increased fuel prices in recent months as a result of the government’s intervention, and the pressure is on for the fuel support package keeping costs lower to be extended.
Due to expire on 31 July, the government is set to make a decision next week on a potential extension.
The ESRI drew on research and date by financial markets to project energy prices in Ireland. It forecast that if the current ceasefire in place in Iran holds, the price of a barrel of oil will slowly trend downwards over time – but that it would still not meet the pre-war baseline by the end of 2027.
Research professor at the institute Alan Barrett said the forecast inflation will be most keenly felt by those on fixed incomes – like rates of social welfare and minimum wage that were decided in October’s Budget for 2026 when the rate of inflation was forecast to be lower.
It also would be felt by those on fixed annual salaries who do not have leverage or grounds for increases.
For many people in the economy, however, their wages will track inflation. Barrett also pointed to positives in the report: low unemployment and strong investment.
The ESRI’s revising of the inflation rate comes after the European Central Bank (ECB) hiked its interest rates for the first time since 2023. The ECB also pointed to volatility in global energy markets and unrest in the Middle East as its reasoning behind raising inflation rates.
Barrett said: “While the headline public finances figures look strong, we remain concerned about potential vulnerabilities.”
He also said an “apparent ready availability of revenues” to the government may be leading to “suboptimal policy”, referencing the fuel package as evidence of a lack of targeted measures.
“It is important that the upcoming public sector pay talks are based on a clear understanding of the public finances vulnerabilities.”