ESRI warns higher energy prices will push up inflation

Higher energy prices caused by the Iran war will push the rate of inflation to an average of 3.2% this year up from 2.2% in 2025, according to a forecast from the Economic and Research Institute (ESRI).

But it said a more prolonged conflict in the Middle East with higher energy costs would lead to "price rises across a wide range of goods and services."
It added that higher inflation would dampen economic activity.

The ESRI said the domestic economy would grow at a slower pace of 2.1% this year, down from 4.9% last year.

On the cuts to taxes on energy introduced by the Government this week, the ESRI said the excise reduction was not targeted at the less well-off, but the extension of the fuel allowance was focused on the most needy.

ESRI research professor Alan Barrett said the greater gains from untargeted measures generally went to more wealthy households due to their "bigger cars and bigger houses."
He added past research showed untargeted measures resulted in 50% of the cost of the measure going to the top 40% of households by income.

"If you start having policies that direct money to higher income people it reduces your capacity to insulate those on the bottom," he added.

"It is well understood that annual completions need to be approaching 50,000 units if national housing targets are to be met," the ESRI said.

But the ESRI said: "It is difficult to see further upward momentum in housing output."
The organisation has also raised concerns about the capacity of the economy to deliver on "so many infrastructure needs in a limited time-frame", adding that the Government needs to prioritise.

"This point becomes more important if the Iran crisis leads to construction inflation," it added.