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Wages to rise 4pc to 5pc next year as inflation bites – EU forecast

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Ibec chief economist Gerard Brady

Ibec chief economist Gerard Brady

Ibec chief economist Gerard Brady

Irish wages are expected to rise 4-5pc this year and next, according to EU estimates, although it is still unclear whether they will keep pace with rising inflation.

Prices in Ireland rose by 5.1pc year-on-year in October, the highest level since the boom years, but are expected to average out at just over 2pc for the year. The European Commission predicts they will rise to 3.1pc on average in 2022.

Gerard Brady, the chief economist for business group Ibec, says it expects basic pay increases of around that level in 2021 and 2022. The Commission figure includes basic pay as well as increased hours worked and other factors.

“Our surveys of member companies suggest basic pay increases at the individual level are expected to be in the 3pc range in 2021 and 2022, with about three-quarters of our members expecting to increase pay next year.”

Tom McDonnell, co-director of the Nevin Economic Research Institute, says that “would end up being a real wage decrease” if inflation were to hit 3.1pc.

Food and drinks producers have warned that consumers here could face even higher prices if the costs of fuel, shipping, packaging and labour keep rising.

The Central Bank of Ireland said this week that services prices – particularly rents, restaurants and accommodation – have risen at a faster pace in Ireland than in the rest of the euro area and were the largest contributor to the overall inflation in Ireland last month.

In its economic letter, it also warned that the euro area “does face a risk of inflation overshooting the [2pc] target in a persistent way”.

Mr McDonnell said this would be unlikely to lead to spiralling wage rises across the economy but that certain sectors where there are labour shortages – such as haulage, construction or IT – could fuel demand.

“I'm not convinced a wage-price spiral will develop,” he said.

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“I do think that wage claims will be higher than in recent years.

“There is a feeling that inflation is still a temporary phenomenon, so unions might be looking for a bit more than they normally would. If they believe it is permanent that would be very, very different.”

The European Commission’s wage rise prediction is contained in its annual ‘alert mechanism report’ on EU economies, and predicts pay rises of over 5pc for workers in Italy and eight eastern European states.

The report also found Ireland is suffering from economic “imbalances” linked to high public and private sector debt and a “strong overvaluation of house prices”.


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