Analysis: The laws of supply and demand are ensuring that high inflation remains embedded in the economy, writes Jane O'Sullivan
The Forfás report, which shows that the Republic is now one of the most expensive places to live in the euro zone, may have come as a surprise to some. But the reality of rising prices is something the Irish consumer has long learnt to live with.
Higher costs for insurance, childcare, healthcare, eating and drinking out and a host of other services have become a permanent feature of Irish life over the past few years as inflation has grown at more than twice the EU average.
At 5 per cent in April, inflation here was well ahead of the next highest in the euro zone, Greece and the Netherlands, which reported inflation of 3.8 per cent.
The report confirms what many economists have been saying for some time - that a high-inflation culture has become embedded in the economy.
"People have just gotten used to the very dramatic increase in prices in a range of areas," says Mr Austen Hughes, economist at IIB Bank.
The strong rate of economic growth, coupled with rising wages, are considered the main factors behind the sharp rise in prices in recent years. They have fuelled demand, which has outstripped supply, particularly in the less competitive services area, allowing providers to pass on price increases with ease.
But if the fundamental causes of our high inflation rate are clear, finding a solution is trickier.
According to Mr Dermot O'Brien, there is not a lot that can be done as market forces - including the supply/demand balance - will ultimately dictate what happens.
He believes the key determining factor in what happens to inflation over the coming months will be wages. As employment growth cools, wages should ease and prices will come down.
"The services sector is very labour-intensive, so pay is a huge part of the whole deal in terms of the cost structure," Mr O'Brien says.
The only problem is that this will not happen overnight, he says.
As far as policy goes, developments in public sector pay will be crucial in coming months as will the fate of national agreements.
The other obvious area that can be addressed in a bid to get inflation under control is the level of competition in the economy.
Analysts have not been slow to note that price rises in the more competitive traded sector of the economy have been well below those in the services sector, where restrictive practices often remain.
In its recommendations the Forfás report suggests a number of issues which merit further study, including the level of competition for the supply of services in the Republic.
Areas mentioned include the pub sector and the supermarket and retail sector, including the impact of the Grocery Order.
The third area where Government action impacts directly on inflation is what it does in relation to indirect taxes.
Many commentators fear that if the public finances remain under pressure, the temptation to hike indirect taxes, such as excise duty, will be great but any such move will directly feed through to inflation.
IIB's Mr Hughes suggests the Government should consider establishing a task force to look at issues such as competition and public sector pricing, which could help curb the growth in inflation as well as showing restraint on indirect taxation.
But whatever measures the Government takes, certain elements in the inflation mix will remain beyond its control.
The recent increase in the euro should prove positive for inflation. But most forecasters believe the European Central Bank is poised to raise rates, either in the third or fourth quarter of the year which will drive housing costs higher.
Meanwhile, this year's bad weather is likely to have a direct impact on food prices, pushing them upward. High inflation could be with us for some time to come.