Iran Crisis to Push Irish Inflation to 3.2% – ESRI Warns

Ireland’s inflation rate is set to rise to 3.2% this year, according to a revised forecast from the Economic and Social Research Institute (ESRI), fueled by escalating energy costs linked to the ongoing crisis in Iran. The new projection represents a significant increase from a previous estimate of 2.1% and underscores the vulnerability of the Irish economy to geopolitical instability.

The ESRI’s latest quarterly bulletin, released on Wednesday, March 25, 2026, warns that a prolonged conflict in the Middle East and subsequent spikes in energy prices could trigger price increases across a broad spectrum of goods and services, simultaneously dampening overall economic activity. Even a swift resolution to the conflict is expected to have a lasting impact on prices within Ireland, particularly concerning disruptions to the Strait of Hormuz and the resulting pressure on oil and gas supplies.

While the government recently implemented cuts to excise duty on fuel in an attempt to shield consumers from rising prices, the ESRI has sharply criticized these measures as poorly targeted. The think tank argues that the reductions primarily benefit higher-income households, effectively functioning as a “subsidy” for those with greater disposable income. ESRI research professor Alan Barrett highlighted that approximately 50% of the benefit from such untargeted measures typically accrues to the top 40% of households by income, questioning the efficiency of the policy.

The ESRI’s assessment comes as Ireland’s economic growth is already showing signs of slowing. The institute now forecasts a 2.1% expansion of the domestic economy this year, a considerable drop from the 4.9% growth experienced last year. Household spending is expected to remain a key driver of growth, supported by a strong labor market, but the impact of higher inflation on consumer confidence and spending power remains a significant concern.

Housing Supply Remains a Critical Challenge

Beyond inflation, the ESRI report also addressed the persistent issue of housing supply in Ireland. While completions rose to over 36,000 units last year, the institute cautioned that momentum appears to be waning. Based on current indicators like commencements and planning permissions, the ESRI anticipates housing output will remain in the mid-30,000s for both 2026 and 2027. This falls short of the approximately 50,000 units annually needed to meet national housing targets.

The report further warns that the current energy price surge could exacerbate challenges in the construction sector, potentially leading to construction inflation and hindering efforts to increase housing supply. The ESRI also raised concerns about the economy’s capacity to deliver on numerous infrastructure projects within a limited timeframe, emphasizing the need for prioritization.

Broader Economic Implications

The ESRI’s revised inflation forecast reflects a growing trend of global economic uncertainty driven by geopolitical events. The Iran crisis is not only impacting energy prices but also creating broader supply chain disruptions and increasing risk aversion among investors. This confluence of factors is likely to weigh on economic growth in Ireland and other countries reliant on energy imports.

Looking ahead, the ESRI plans to review its forecasts in light of developments in the Iran crisis. The duration and intensity of the conflict, as well as the effectiveness of government policies to mitigate the impact of rising energy prices, will be key determinants of Ireland’s economic performance in the coming months. Businesses and consumers alike should prepare for continued price volatility and a potentially slower pace of economic growth.