Irish households are facing a fresh cost-of-living crisis as new data from AIB suggests inflation could skyrocket to 7% by the end of the year. The primary driver is the ongoing blockade of the Strait of Hormuz, a vital maritime artery through which one-fifth of the world’s oil and liquefied natural gas (LNG) passes.
In a detailed briefing released this week, AIB economists warned that the temporary “energy shock” many hoped for has transformed into a prolonged economic threat. Since the blockade began in early March, Brent Crude has surged past $120 per barrel. If these conditions persist through December, Ireland’s Harmonised Index of Consumer Prices (HICP)—which was recently hovering around 2.5%—could more than double.
David McNamara, Chief Economist at AIB, noted that the services sector is already feeling the burn. The latest Purchasing Managers’ Index (PMI) showed a contraction in the transport and tourism sectors for the first time in five years. Airlines, including Aer Lingus and Ryanair, have begun trimming summer schedules as jet fuel costs become unsustainable, while hotels face double-digit increases in electricity and heating bills.
Ireland is particularly exposed to this crisis due to its energy infrastructure. According to the Economic and Social Research Institute (ESRI), Ireland remains more dependent on gas-fired electricity generation than many of its European neighbors. When wholesale gas prices nearly doubled following the initial disruption in the Gulf, Irish utility providers were among the first to announce price hikes. PrepayPower has already confirmed an 8.8% rise in electricity and a 10.6% rise in gas starting June 1, with other major suppliers expected to follow.
For the average Irish family, a 7% inflation rate means an additional €3,000 to €4,000 in annual expenses for basic necessities like fuel, heating, and groceries. The Central Bank of Ireland has expressed concern that this “inflationary tax” will significantly dampen consumer spending, which has been the backbone of Ireland’s post-pandemic recovery.
While the government has previously used energy credits and VAT reductions to shield citizens, analysts at Davy suggest that a 7% peak would require a much more substantial intervention, potentially straining the national budget surplus.
The situation remains tied to the geopolitical climate in the Middle East. While some markets hope for a “Project Freedom” agreement to allow vessels through the Strait, the current reality remains one of tight supply and extreme volatility. Without a diplomatic breakthrough, the “New Year” for many Irish businesses may begin with the shadow of a technical recession.
