The Governor of the Central Bank has said “the prospects for Ireland’s economy appear bright” but warned that the risks to inflation in Ireland remain “on the upside”.
Gabriel Makhlouf made his remarks at on online webinar hosted by the Institute of Directors.
On inflation, the Central Bank Governor said it is expected to remain above 2% for most of this year across the euro area but to fall below 2% in 2023 and 2024.
In Ireland, the Governor said inflation will remain above pre-pandemic levels and the risks are judged to be on the “upside”.
In remarks to the media afterwards, Gabriel Makhlouf said inflation in Ireland has been higher than the rest of the euro area and he expected that to continue, although he also expects it to be lower than it has been over the course of this year.
He described recent energy price increases as “spectacular”.
While the Central Bank expected prices to moderate, he said it may take a while for people to experience it as there will be a lag between wholesale and consumer prices.
He said there was no evidence yet that wages increases that are not justified by increases in productivity are setting into the economy but added that the Central Bank was “keeping a very close eye” on this.
On interest rates, he said he expected the European Central Bank to lag behind recent moves by the Bank of England and anticipated moves by the US Federal Reserve to increase rates.
He said he believes it is unlikely for headline interest rates to increase in the euro area this year, “from what he knows today.”
Gabriel Makhlouf said Brexit had dropped down but not out of the Central Bank’s agenda but that based on conversations with some in business, it seemed to be “less of an ongoing issue”.
He said he was looking forward to the Department of Finance’s review into the banking system, following the exits of Ulster Bank and KBC Bank Ireland, adding that he hoped the Competition Commission would look at “pure competition issues”.