The latest Harmonised Index of Consumer Prices (HICP) month-on-month (MoM) reading for Ireland, released on December 1, 2025, shows a contraction of -0.20%. This marks a reversal from November’s 0.40% increase and continues a volatile trend observed over the past five months. According to the Sigmanomics database, this is the second negative MoM print in the last four months, signaling emerging deflationary pressures in the Irish economy.

Drivers this month

• Shelter costs eased, contributing approximately -0.15 percentage points (pp) to the MoM decline.
• Energy prices fell by 1.30%, subtracting 0.05 pp from inflation.
• Food prices remained broadly stable, with negligible impact.

Policy pulse

The current HICP MoM reading sits below the European Central Bank’s (ECB) inflation target of 2%, reinforcing concerns about subdued price pressures. This deflationary signal may influence the ECB’s upcoming monetary policy decisions, potentially delaying further rate hikes.

Market lens

Immediate reaction: The EUR/GBP currency pair dipped 0.15% within the first hour post-release, reflecting market sensitivity to the weaker inflation data. Short-term government bond yields also softened, with the 2-year Irish sovereign yield declining by 5 basis points.

Examining core macroeconomic indicators alongside the HICP MoM data provides a clearer picture of Ireland’s economic trajectory. The recent GDP growth rate for Q3 2025 was 0.30% quarter-on-quarter, down from 0.50% in Q2, indicating a moderation in economic momentum. Unemployment remains low at 4.20%, but wage growth has slowed to 2.10% year-on-year (YoY), limiting upward pressure on consumer prices.

Monetary policy & financial conditions

The ECB’s deposit rate currently stands at 3.75%, unchanged since October. Financial conditions have tightened slightly due to global uncertainties, but credit growth in Ireland remains positive at 3.80% YoY. The recent HICP MoM decline may reduce the urgency for further monetary tightening.

Fiscal policy & government budget

Fiscal policy remains moderately expansionary, with the government running a deficit of 1.50% of GDP in 2025, aimed at supporting infrastructure and social programs. However, rising debt servicing costs amid higher global interest rates pose risks to fiscal sustainability.

External shocks & geopolitical risks

Global energy price volatility and ongoing geopolitical tensions in Eastern Europe continue to weigh on inflation dynamics. Ireland’s open economy is vulnerable to supply chain disruptions, which could offset domestic deflationary trends if shocks intensify.

Energy and shelter costs have been the primary drivers of this month’s decline. Energy prices, which contributed 0.10 pp in November, reversed sharply due to easing global oil prices. Shelter costs, a significant component of the Irish HICP basket, also moderated, reflecting slower rent growth and lower utility bills.

Market lens

Immediate reaction: Irish government bond yields fell, with the 2-year yield dropping 5 basis points, reflecting expectations of a more dovish ECB stance. The EUR/GBP exchange rate weakened slightly, indicating market concern over subdued inflation momentum.

Looking ahead, the HICP MoM contraction introduces uncertainty into Ireland’s inflation outlook. Three scenarios emerge based on current data and macroeconomic trends:

Bullish scenario (30% probability)

• Energy prices stabilize or rise due to geopolitical tensions, pushing inflation back above 0.30% MoM.
• Wage growth accelerates, supporting consumer spending and price increases.
• ECB maintains a cautious tightening path, balancing growth and inflation risks.

Base scenario (50% probability)

• Inflation remains subdued, fluctuating between -0.10% and 0.20% MoM over the next quarter.
• Monetary policy remains on hold, with gradual normalization of financial conditions.
• Fiscal policy continues to support growth without exacerbating inflation.

Bearish scenario (20% probability)

• Deflationary pressures deepen due to persistent global supply chain improvements and weak wage growth.
• ECB signals potential rate cuts in 2026 to counteract low inflation.
• Consumer confidence deteriorates, dampening demand and price pressures further.

Policy pulse

The ECB’s next meeting will be closely watched for signals on rate trajectory. The December HICP MoM print strengthens the case for a pause or slower pace of hikes, especially if inflation remains below target in early 2026.

In summary, Ireland’s December 2025 HICP MoM reading of -0.20% marks a notable shift from recent inflation gains. While this may reflect temporary factors such as energy price corrections and shelter cost moderation, it raises questions about the durability of inflationary pressures. Policymakers face a delicate balance between supporting growth and preventing deflation. Financial markets have reacted cautiously, pricing in a more dovish ECB stance. Structural trends such as wage growth and fiscal policy will be critical in shaping the inflation path in 2026.

Key Markets Likely to React to HICP MoM

The Irish HICP MoM data typically influences several key markets. The EURGBP currency pair often reacts to inflation surprises due to trade and monetary policy linkages. The IE00B4BNMY34 ETF, tracking Irish equities, is sensitive to inflation-driven earnings expectations. Sovereign bond yields such as IE00B4BNMY34 reflect inflation risk premia. Additionally, the BTCUSD pair can act as an inflation hedge, while the EURUSD pair responds broadly to Eurozone inflation trends.

FAQs

What does the December 2025 HICP MoM reading indicate for Ireland’s inflation?

The -0.20% MoM reading signals a short-term deflationary phase, reversing prior inflation gains and suggesting subdued price pressures.

How might the ECB respond to this inflation data?

The ECB may delay further rate hikes or adopt a more cautious stance, given inflation remains below the 2% target.

What are the main risks to Ireland’s inflation outlook?

Upside risks include energy price shocks and wage acceleration; downside risks involve persistent supply chain improvements and weak demand.

Key takeaway: Ireland’s December HICP MoM decline underscores emerging deflationary risks, challenging policymakers to balance growth support with inflation control.