The latest Harmonized Index of Consumer Prices (HICP) for Ireland, released on December 1, 2025, shows a year-on-year inflation rate of 3.20%. This figure, sourced from the Sigmanomics database, represents a notable acceleration from November’s 2.80% and is the highest reading since July 2024. The increase reflects ongoing pressures in energy, housing, and food sectors amid a complex macroeconomic environment.

Drivers this month

• Energy prices contributed approximately 0.45 percentage points (pp) to the inflation rise, reflecting global supply constraints.
• Shelter costs added 0.30 pp, driven by rising rents and property maintenance expenses.
• Food inflation edged up by 0.15 pp, influenced by supply chain disruptions and higher input costs.

Policy pulse

The 3.20% inflation rate remains above the European Central Bank’s (ECB) target of 2%, reinforcing the case for continued monetary tightening. The ECB’s recent rate hikes have aimed to temper demand-side pressures, but supply-side shocks continue to complicate the inflation outlook.

Market lens

Immediate reaction: EUR/GBP dipped 0.15% within the first hour post-release, reflecting mild disappointment over persistent inflation. Irish government bond yields rose by 5 basis points, signaling increased risk premium on inflation persistence.

Examining Ireland’s broader macroeconomic context reveals mixed signals. GDP growth for Q3 2025 was a moderate 1.10% quarter-on-quarter, while unemployment held steady at 4.50%. Wage growth accelerated slightly to 3.00% YoY, feeding into inflationary pressures. The fiscal deficit narrowed to 2.80% of GDP, reflecting prudent government spending and improved tax revenues.

Monetary policy & financial conditions

The ECB’s deposit rate currently stands at 3.75%, up from 3.25% three months ago. Financial conditions in Ireland remain moderately tight, with credit growth slowing to 4.20% YoY. The Irish Central Bank has signaled readiness to maintain restrictive stances until inflation shows sustained convergence to target.

Fiscal policy & government budget

Fiscal policy remains cautiously neutral. The government’s 2026 budget projects a slight increase in public investment but maintains a focus on deficit reduction. Tax incentives for energy efficiency upgrades aim to mitigate inflation’s impact on households.

External shocks & geopolitical risks

Ongoing geopolitical tensions in Eastern Europe and volatile oil markets continue to pose upside risks to inflation. Ireland’s open economy is sensitive to energy price shocks and supply chain disruptions, which could exacerbate inflationary pressures in the near term.

Drivers this month

• Energy inflation rose from 6.50% YoY in November to 8.00% in December.
• Shelter inflation increased from 4.20% to 4.70% YoY.
• Food inflation edged up from 3.10% to 3.30% YoY.

Policy pulse

The ECB’s tightening cycle appears to be lagging the inflation uptick, with markets pricing in further hikes in early 2026. The current inflation overshoot above the ECB’s 2% target signals persistent supply-side shocks and wage pressures.

Market lens

Immediate reaction: Irish government bonds (IE10Y) yields increased by 7 basis points, while EUR/IE currency pairs showed slight depreciation, reflecting inflation concerns. Equity markets, represented by CRH, showed muted volatility.

Looking ahead, Ireland’s inflation trajectory hinges on several key variables. The base case scenario (60% probability) anticipates inflation moderating to around 2.50% by mid-2026 as energy prices stabilize and monetary policy effects materialize. A bullish scenario (20%) sees inflation falling below 2% by Q3 2026, driven by a rapid global energy price decline and subdued wage growth. Conversely, a bearish scenario (20%) projects inflation rising above 4% if geopolitical tensions escalate and supply chain disruptions persist.

Monetary policy implications

The ECB is expected to maintain a cautious stance, with potential rate hikes in early 2026 if inflation remains above target. Ireland’s Central Bank will likely support this approach, balancing inflation control with growth concerns.

External risks

Energy market volatility and geopolitical instability remain the largest downside risks. A sudden spike in oil or gas prices could reignite inflationary pressures, forcing more aggressive policy responses.

Structural & long-run trends

Long-term inflation in Ireland has averaged around 1.80% over the past decade. Structural factors such as housing supply constraints and wage growth trends will continue to influence inflation dynamics beyond the short term.

In summary, Ireland’s December 2025 HICP YoY inflation reading of 3.20% signals a renewed inflationary phase, driven by energy and shelter costs. While monetary and fiscal policies are aligned to contain inflation, external shocks and structural constraints pose ongoing risks. Market reactions have been measured, reflecting cautious optimism. Monitoring energy markets and wage developments will be critical in assessing inflation’s path in 2026.

Investors and policymakers should prepare for a range of outcomes, with the base case favoring gradual disinflation but acknowledging the potential for volatility. Ireland’s economic resilience and policy agility will be tested in the months ahead.