Central Bank’s Inflation Forecast: What It Really Means for Your Petrol, Groceries, and That Friday Pint—Prepare to Be Surprised!
Inflation—just when you think you’ve got a grip on it, it has a knack for throwing curveballs, doesn’t it? The Central Bank’s latest projections are painting quite the uneasy picture: inflation could skyrocket to nearly 5% next year if the worst-case “severe” scenario takes hold. Now, before you sigh and brace for impact, think about what’s fueling this surge—energy prices going haywire thanks to geopolitical tensions in the Middle East and the closure of the Strait of Hormuz. Even with whispers of a peace deal between the US and Iran, the aftermath is a tangled mess that’ll take a serious stretch of time to untangle and smooth out supply chains. If you’re like me, you’re already feeling the pinch in your wallet—household bills creeping up, gas prices nudging higher, and those everyday essentials inching their way beyond what feels comfortable. And here’s the kicker: wages aren’t keeping pace, likely rising a mere 0.5%, which means real income is taking a hit. So, what’s the play here? How do we prepare for the choatic economic tides ahead without losing sight of opportunity? Let’s unpack the numbers and scenarios—because knowing the terrain is half the battle. LEARN MORE
Inflation could rise to almost 5% next year in the most severe scenario modelled by the Central Bank.
Higher energy prices stemming from the conflict in the Middle East and the closure of the Strait of Hormuz are eroding confidence and real incomes for households.
Despite news of a peace deal between the US and Iran, the Central Bank said in its quarterly bulletin that heightened uncertainty remains and that it will take an extended period to restore supply chains to normal.
The financial regulator has forecast that inflation will average 3.5% in 2026, which would be in line with the 3.6% recorded by the Central Statistics Office (CSO) in May.
In a baseline scenario where oil and gas prices return to normal levels next year amid reduced geopolitical uncertainty, the Central Bank has projected that inflation will average 2.9% in 2027.
In an ‘adverse’ scenario where oil prices rise 10% and gas prices increase 14%, inflation could rise to 3.2% on average next year.
However, in a ‘severe’ scenario whereby oil prices grow 32% and gas prices surge 64%, the Central Bank has said that inflation could average close to 5% in 2027.
In such an event, the rising cost of everyday goods and services will continue to accelerate, further reducing disposable income for households.
At present, with inflation hovering around 3.5%, the Central Bank has forecast that wages will only rise by 0.5% and pay will fall in real terms next year in the ‘severe’ scenario.
According to Switcher.ie, the average household using 4,200KWh worth of electricity and 11,000KWh of gas per year has a monthly household energy bill of €280 between payments of €115.17 for electricity and €124.83 for gas.
On the basis that inflation will average 3.5% for the rest of the year and 5% next, as forecast by the Central Bank in the worst-case scenario, nearly €20 will be added to the monthly household energy bill (€299.72).
That would mean the average household pays nearly €240 more for electricity and gas with an annual bill (€2,597).
The price of petrol and diesel at the pump has been significantly higher since the start of the war in Iran in later February, rising to an average of €1.99 per litre for diesel and €1.87 for petrol in May,
In the Central Bank’s ‘severe’ scenario, oil prices would rise by nearly a third (+32%), which would see a further 60c added to the price of petrol (€2.47) around 64c added to the price of diesel (€2.63) per litre next year.
Again, assuming inflation averages 3.5% from now until the end of the year and 5% in 2027, prices of staple food and drink items will increase as so:
- white slice pan, +12c from €1.67 in May 2026 to €1.79 in December 2027
- 2L of full fat milk, +17c from €2.38 to €2.55,
- half-dozen of large eggs, +17c from €2.46 to €2.63
- lb of butter, +30c from €4.30 to €4.60
- 2.5kg of potatoes, +26c from €3.69 t0 €3.95
And then, the price of stout (€6.32 at present) would increase by 45c to €6.77 at the tap while the price of lager (€6.75) would grow 48c to €7.23.
Similarly, the price of a 20-pack of cigarettes would exceed €20 without accounting for any potential tax increases in Budget 2027.
(Pic: Getty ImageS)
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