The OECD said today it expects the Irish economy to grow by nearly 5 per cent this year but warned wage pressures were mounting in protected sectors.
The Paris-based economic think tank said domestic demand should expand rapidly as strong income growth continues and Government spending provides additional impetus.
Despite strong wage growth, inflation is projected to remain relatively muted, edging up to 2.75 per cent in 2006.
But the OECD warned that increasing unit labour costs weigh on competitiveness.
"Strong wage pressures in some sheltered sectors, where regulations limit the scope for competition, could revive inflation," the OECD said in its summary of Ireland.
The organisation called for further liberalisation in network industries, in retail distribution and in professional services to help curb the risk of renewed price and wage inflation.