\u201cWe think that inflation will be higher for longer than many currently forecast,\u201d wrote managing director John Finn in a quarterly review. \u201cThe challenges are multifaceted and, in our opinion, underestimated at this point in time. The direct consequences are obvious, but the domino effect is more likely to be material.\u201d<\/p>\n
![\"John](\"https:\/\/www.newsbeep.com\/ie\/wp-content\/uploads\/2026\/05\/52e3ab52-b4a3-4b53-a2e9-97a29f1914bb.jpg\")
John Finn, managing director of Treasury Solutions<\/p>\n
Finn laid out a scenario in which persistent inflation forced the European Central Bank to increase rates this summer, leading initially to higher debt costs for households, businesses and the government and then to lower spending, less investment and either tax rises or spending cuts. \u201cNone of these are positive for economic growth,\u201d Finn wrote. \u201cThere is some anecdotal evidence of caution in spending already. If consumer spending slows in anticipation of an economic slowdown, it could precipitate it.\u201d<\/p>\n
The warning echoes commentary from other quarters in recent weeks, as markets are pricing in an ECB rate rise at the bank\u2019s next monetary policy meeting on June 11 to counteract the latest spike in oil. Brent crude reached nearly $115 as the US and Iran traded blows.<\/p>\n
\u201cIt appears the further rise in energy prices supports the case for a rate hike despite its dampening effects on growth,\u201d Dermot O\u2019Leary, the Goodbody chief economist<\/a>, wrote to clients last week.<\/p>\n Irish consumer prices rose 3.6 per cent for the second month in a row in April, well above the ECB target of 2 per cent. Inflation in the euro area was 3 per cent last month. Monthly data from the most recent purchasing managers indices points to more pain to come, as well.<\/p>\n Ireland newsletter<\/p>\n Our best in-depth reads, exclusive features, news and a note from our editors in Ireland.<\/p>\n \t\t\t\t\tSign up with one click<\/p>\n The AIB services purchasing managers\u2019 index (PMI) for April, released last week, showed the first decline in activity in the sector since February 2021 as new business \u201cstalled\u201d amid the highest input price inflation since December 2022 \u2014 across fuel, freight, energy and wages \u2014 leading to a steep rise in charges for consumers. Not surprisingly, the business outlook for the next year was subdued.<\/p>\n The manufacturing PMI was much the same, marking the biggest rise in prices since September 2022 alongside the worst supply chain disruption since the tail-end of the Covid-19 pandemic<\/a>.<\/p>\n The government has already revised downwards its forecasts for consumer spending and domestic demand, its preferred measure of growth, to reflect higher inflation through 2026. In the Department of Finance\u2019s \u201csevere\u201d inflation scenario, growth would be reduced by a third to just 2 per cent next year.<\/p>\n