Inflation: Republic of Ireland real pay will grow, think tank says

Workers in the Republic of Ireland can expect pay to grow in real terms over the next two years, a leading think tank has forecast.

Real pay growth refers to the situation where pay is increasing by more than the rate of inflation.

Inflation spikes over the past two years has meant that workers in many countries have seen the real value of their pay fall.

The Economic and Social Research Institute (ESRI) expects real pay growth of 2% this year and 3% next year.

It says this will be driven by lower inflation and a labour market which is operating at “full capacity”.

“For the first time in two years, Irish households will see an increase in real wages in both 2024 and 2025,” said Kieran McQuinn of the ESRI.

“This will support increased consumption levels in the domestic economy.”

The Irish labour market has recovered strongly since the Covid-19 pandemic with employment surpassing 2.7m workers for the first time in modern history and unemployment standing at 4%.

The ESRI also expects Ireland’s domestic economy to grow by 2.2% this year and 2.9% next year.

The country’s domestic economic performance is assessed using modified domestic demand (MDD), a measurement which strips out the distorting impacts of multinational companies on Ireland’s economy.

Official figures show MDD grew by just 0.5% last year as inflation and higher interest rates hit spending and investment.

The ESRI says risks to growth outlook include potential geopolitical shocks in both Europe and Asia, and difficulties in maintaining investment levels in the presence of capacity constraints.