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Workers in Ireland in line for biggest pay hike in a decade, Central Bank says

Real incomes will rise by almost 9 per cent over the next three years, Central Bank predicts

The Central Bank forecast that 'compensation per employee' would increase annually by an average of 2.9 per cent in real terms between 2024 and 2026. Photograph: Alan Betson

Eoin Burke-Kennedy
Tue Mar 12 2024 - 00:01

Workers here are in line for their biggest pay hike in a decade with real incomes (adjusted for inflation) expected to rise by almost 9 per cent over the next three years, according to the Central Bank of Ireland.

The positive outlook for wages comes on the back of a rapid fall-off in headline inflation, which is expected to average just 2 per cent this year, down from more than 5 per cent last year, and an ongoing tightness in the labour market, which underpins salary growth.

In its latest quarterly economic bulletin, the Central Bank forecast that “compensation per employee” would increase annually by an average of 2.9 per cent in real terms between 2024 and 2026.

It cautioned, however, that the lift in salaries would be uneven due to recent changes to the minimum wage and because of incremental and backdated increases to public-sector pay arising from the new deal, which it said would result in large annual increases in the second and third quarters of 2024.

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The projected lift in real incomes would underpin consumer spending, which would in turn drive modest but stable growth in the domestic economy, the financial regulator said.

The domestic economy, as measured by modified domestic demand (MDD), is projected to grow at an average annual rate of 2 per cent over the next three years. “Weak external demand and domestic capacity constraints are expected to weigh on the pace of growth over the forecast horizon,” the bank said.

It also warned that domestic factors had now become the main drivers of inflation. While headline price growth fell to 4 per cent in January and is expected to average just 2 per cent this year, inflation in the services sector remains above 5 per cent and is projected to decline only gradually out to 2026.

The Central Bank warned that several risks, if realised, could cause the economy to deviate from the current projected path of stable growth and lower inflation.

These included another energy price spike due to ongoing geopolitical tensions in the Middle East; a prolonged slump in the global economy, which would damage exports; and increases in labour costs above productivity, which would generate excessive inflationary pressures.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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