A rise in oil prices to the highest level in a decade has combined with a fall to near record lows in the value of the euro to exacerbate Ireland's precarious inflation outlook. Motorists and householders are also facing a new round of increases in petrol and domestic heating costs.
The euro fell again yesterday, to stand just above the record lows registered a few days ago, while oil prices hit their highest levels since the Gulf War.
The rising cost of oil will put pressure on Irish and European inflation, as recent petrol price cuts are reversed. Because crude oil is priced in dollars, the effects are being compounded by the weak level of the euro.
Mr Oliver Mangan, an economist at AIB, warned that the combination of factors could force the European Central Bank to raise interest rates higher and faster than it would otherwise. This might cool the overheating Irish economy somewhat, but it would also put further pressure on inflation, as mortgage repayments are included in the consumer price index.
The only good news was the supermarket price war, which had the potential to reduce food price inflation, currently the highest in Europe.
According to Mr Mangan, there is no real turning point in sight for the euro, as the dollar is buoyed by the effects of longer-term capital flows and superior economic growth rates in the US.
The European Commission said yesterday that the steep cost of oil was "unacceptable" and it added that it was working on an action plan to counter the recent market moves.
The embattled French Transport Minister, Mr Jean-Claude Gays sot, faced with oil refinery blockades in protest at soaring fuel prices, last night offered unions lower taxes on motor fuel. He also said European countries and the European Central Bank should hold talks with the OPEC countries and tell them they could not "do just anything". European finance ministers are to discuss the matter on Friday.
OPEC oil ministers meet this weekend to consider their response to escalating prices, which reached a 10-year high of $32.80 a barrel on Monday. Crude oil for October delivery rose 1.9 per cent to $34 a barrel in electronic trading on the New York Mercantile Exchange. Some analysts, including Goldman Sachs, fear it could rise to $50 a barrel from a low of just $10 two years ago.