Staff Insights

Key Insights

• This Staff Insight presents a new framework for monitoring price pressures along the supply chain, helping to identify in advance which consumer categories are likely to experience price movements and the mechanisms driving them, with a particular focus on imported energy shocks.

• The 2026 energy shock (the oil-price spike that followed the US-Iran conflict and the threat to the Strait of Hormuz) is clearly visible in the data, but broader supply-chain pass-through remains limited so far against a backdrop of persistent domestic non-energy inflation.

• Applied to the adverse and severe oil and gas price scenarios included in the Q2 2026 Quarterly Bulletin, the framework implies increases of approximately 1.7 and 5.0 per cent in the HICP price level under full cost pass-through. These are static estimates, rather than forecasts, relating solely to the increase in energy costs. Roughly one quarter of the estimated increase in price level comes indirectly via the supply chain of non-energy goods and services.

Introduction

Ireland’s exposure to imported energy

Irish inflation reflects the interaction of global and domestic forces. As a small open economy with a high import dependence, movements in international energy prices transmit into consumer prices in Ireland quickly and visibly. The 2022 inflation surge was dominated by energy price increases following Russia's invasion of Ukraine. The subsequent phase shifted towards persistent services inflation as earlier shocks passed into wages, rents and locally priced services (Figure 1). In recent months of 2026, energy prices have re-emerged as a key driver of inflation.

Annual HICP inflation stood at 3.2 per cent in June 2026, having peaked at 3.6 per cent in March and April, with energy prices up 10 per cent year-on-year. Unlike the 2022 energy shock, the present shock is predominantly evident in oil, rather than gas prices. Ireland relies more heavily on home heating oil than our euro area peers (over two times larger based on share of total consumption), which rose 80 per cent in the year to April 2026, while motor fuel increased by 17 per cent, before easing considerably - to 49 and 11 per cent respectively by June - following the Government’s excise cut and the retreat in oil prices.^[1] Although wholesale gas prices have risen since the start of the US-Iran conflict, Irish retail gas prices remain broadly flat (+0.2 per cent in the year to June 2026) while electricity prices have picked up somewhat (+4.2 per cent). The mid-2026 disruption to the safe passage of crude oil through the Strait of Hormuz had direct implications for businesses and for household living costs, and, consequently, the level of real activity in the Irish economy - and the risk of renewed disruption remains. Understanding the potential implications of a more prolonged conflict on broader categories of Irish consumer prices is therefore essential.

This Insight decomposes Irish HICP inflation into domestic and imported components, and into energy and non-energy content, by tracing the full supply chain embedded in each good and service. We examine where global energy shocks show up first, whether recent inflation is predominantly imported or domestic, and which categories are most exposed when an external shock arrives. We then apply the framework to the adverse and severe oil and gas price scenarios from the Central Bank’s Q2 2026 Quarterly Bulletin (QB) and display a tool developed for ongoing monitoring of energy-price-induced cost-push inflation.

Building the framework

Data sources and methodology

The framework integrates three complementary data sources. First, Harmonised Index of Consumer Prices (HICP) data from the Central Statistics Office (CSO) provides monthly prices and weights for 94 item-level categories for Ireland. Second, Eurostat's FIGARO inter-country input-output (I/O) tables – roughly 3,200 country-product nodes spanning about 50 countries and 64 product groups – map each item back into the global production network at basic prices. Third, the CSO Supply-Use and Input-Output Tables (SUTs) then supply the Ireland-specific purchaser-price wedge, which includes the combined trade margin (wholesale, transport and retail) plus taxes on products.

The method proceeds in three steps. First, we build a classification bridge that maps each HICP item onto the corresponding FIGARO I/O and CSO SUT tables’ products. Second, we use a standard input-output technique to trace every euro of household spending back through the entire production network at basic prices, including the energy consumed several stages upstream.^[2] A separate CSO supply-use wedge then adds the Irish trade and transport margins and product taxes that sit between basic and purchaser prices. Third, we isolate domestic and energy-producing nodes to determine each item's origin and energy content, then apply item-level weights to monthly price changes to decompose inflation at the HICP level. In effect, the method follows each euro through every supplier, and every supplier’s own supplier, so that energy used several stages upstream is captured, not just the energy a product uses directly. The framework measures this mechanical cost-push exposure and abstracts from behavioural responses such as demand adjustment, margin absorption or policy supports, so the scenario results reported below are a compliment to – rather than a substitute for – other inflation forecasts produced by the Central Bank.

This approach is related to a small but growing literature that uses input-output and supply-use tables to distinguish imported from domestically generated inflation and to trace cost shocks through production networks. For the UK, Dhingra (2023) and Dhingra and Page (2023) show how the terms-of-trade shock fed into CPI inflation through energy, import and indirect supply-chain channels. For the euro area, the ECB’s low import intensity, or LIMI, indicator applies a similar import-intensity logic to HICP items, using direct and indirect import content to isolate price pressures that are more domestically generated. Recent academic work using sectoral producer prices, notably Chau et al. (2026), shows how inflation shocks propagate through global value chains and input-output linkages, while Schneider (2025) provides a closely related HICP decomposition for Austria.

From producer prices to consumer prices: Decomposing the price wedge

FIGARO operates in basic prices while households pay purchaser prices. The CSO Supply-Use tables calibrate the wedge between these two measures, comprising the combined trade margin plus VAT and product taxes. For example, of every euro spent on consumer transport goods (mainly motor vehicles), approximately half represents the imported basic price, 12 cents is Irish value added, one fifth is the combined trade margin (wholesale, transport and retail), and 17 cents is tax (Figure 2).^[3] The degree of additional non-energy related value-added throughout the global production and domestic delivery process helps determine the potential scale of energy-induced cost-push inflation at a goods category level on final consumer prices.

The wedge varies enormously across categories (Figure 3). Apparel is dominated by the combined trade margin (roughly 50 cents of every euro); alcohol and tobacco by tax (44 cents per euro); most grocery spending is basic price with only a few cents of VAT. Decomposing the basic price shows that approximately half of every euro spent on electricity and gas, and 68 cents of every euro spent on transport services is imported basic price. Motor and heating fuel, by contrast, carries the largest tax wedge at about 41 cents of excise, carbon tax and VAT per euro (for motor fuel alone the tax share exceeds half), in-part reflecting government policy to address the negative environmental externalities associated with carbon-emitting fuels.

Where energy enters the supply chain

Through the lens of the I/O and SUT tables, energy enters a consumer good at three points, corresponding to the three energy-producing sectors through which the supply-chain runs. These include crude and gas extraction (for example natural gas turned into nitrogen fertiliser), refined petroleum (such as diesel and fuels that power manufacturing machinery and goods transport), and electricity and gas utilities (such as the power for processing and refrigeration). Many goods categories draw on all three energy sources in some form during production and distribution.^[4]

(Figure 4) demonstrates this for the general food and non-alcoholic beverages category. For every euro of final demand for food, about 7.7 cents is embedded energy, comprising 3.7 cents from electricity and gas, 2.4 cents from extraction and 1.6 cents from refined fuel. These 7.7 cents are cumulative energy purchases along the supply chain (the same energy is counted at each stage it changes hands, so there is some double counting); counted once, as energy-sector value added, food’s embedded energy is lower at around 3 cents per euro.

Decomposing inflation: imported vs domestic, energy vs non-energy

Applying the framework from 2019 to 2026 reveals both the volatility of imported energy and the persistence of domestic non-energy inflation. Throughout the analysis, energy is measured on an integrated supply chain basis by combining the direct household energy bill with the energy embedded in producing all other goods and services and split, like the rest of the basket, into imported and domestic content.

At the 2022 peak (June 2022), when annual HICP reached 9.6 per cent, imported and domestic energy together contributed approximately 4.9 percentage points, with imported non-energy goods adding a further 2 percentage points. Domestic non-energy content had risen materially by 2021/22, made a substantial contribution at the 2022 peak and remained persistently positive as energy prices normalised and earlier shocks fed into wages and rents. By late 2025, headline inflation of approximately 2.7 per cent was led by domestic non-energy content (1.6 percentage points), with energy and imported non-energy together contributing approximately 1 percentage point. Early 2026 marks a turning point, by April, headline inflation had climbed back to 3.6 per cent and imported energy had jumped to around 1.1 percentage points – the clearest sign in the data that the renewed oil-price spike is again reaching Irish prices through imports. Headline inflation then eased to 3.5 per cent in May and 3.2 per cent by June, with the imported-energy contribution moderating to around 0.8 percentage points following the excise cut and the retreat in oil prices (Figure 5).

Application: energy exposure and the 2026 scenarios

To determine which consumer price categories face the greatest exposure to the current energy shocks, (Figure 6) maps the embedded oil and gas in every category (aggregating the three entry points from Figure 4) prior to any shock being applied. Among the non-energy (indirect) goods and services, transport services stand out at approximately 8 cents of energy-sector value added per euro largely in the form of oil. Most goods contain 2-4 per cent embedded energy value added, while housing services contain less than half a per cent. The two direct-energy categories sit far above this scale at around 45 and 54 cents per euro, and their composition is informative – motor and heating fuel’s energy value added is almost entirely oil (extraction plus refining), while electricity and gas’s is mostly the utilities’ own margins with natural gas the dominant fuel, which in part explains why the former spiked in 2026 and the latter did not.^[5]

How large could the cost-push shock to Irish consumer prices be if disruption to oil and gas supply through the Strait of Hormuz were to resume? We apply the framework to the adverse and severe energy-price scenarios underpinning the Q2 2026 QB.^[6] Table 1 shows the outcome of applying our framework to these scenarios’ peak price levels reached in 2026 as a static shock. Oil and gas reach USD 122 per barrel and EUR 60 per MWh in the adverse case, and USD 166 and EUR 98 in the severe case. For the supply-chain channel, the shock enters at a single point – the price of extracted oil and natural gas (split 60/40 between oil and gas based on SEAI 2023 import values) – and propagates through the global supply chain. Refined petroleum, electricity and every downstream product inherit the shock in proportion to their cumulative extraction content, so no unit of primary energy is counted twice. Household energy bills are treated separately in the direct channel, with calibrated retail pass-through fractions.^[7]

The household impact runs through both channels (Table 1). Direct energy bills rise most, especially gas and home heating oil, while indirect increases are smaller and led by transport services. In aggregate, the adverse and severe cases imply eventual first-round increases of approximately 1.7 and 5.0 per cent in the HICP price level, with roughly three-quarters of each effect arising through the direct channel.^[8]

Using the same underlying oil and gas scenario paths, but including the full quarterly profiles in a dynamic framework, Quarterly Bulletin 2 2026 included estimates of annual-average HICP deviations from its 3.5 per cent central inflation forecast of +0.3 (adverse) and +0.9 (severe) percentage points in 2026, with the severe deviation continuing to build to 1.9 percentage points in 2027. These estimates were derived using the Bank’s semi-structural macroeconomic models and differ from the estimates produced using this methodology.^{[9] [10]} As a result, this analysis should be read alongside the Bank's inflation projections rather than as substitutes for them.

Endnotes

1. The subsequent month-on-month fall in energy in May partly reflects the Government's fuel-excise cut. ↑
2. This input-output technique is the Leontief inverse, (I−A)⁻¹, which cumulates each product’s direct and indirect input requirements across the entire production network; the formal expression is given in footnote 3. ↑
3. The trade margin measures a range of factors and is not simply a profit mark-up, it covers intermediate inputs, labour costs and gross operating surplus. For services sold directly to households that carry no trade margin, such as hotel accommodation, gross operating surplus is included in domestic value added within the basic price, so carry no trade margin.  ↑
4. For a final demand vector f of household consumption, the total output required across all sectors is given by x = (I – A)^–1 f, where A is the matrix of technical coefficients (intermediate inputs per unit of output) and I is the identity matrix. Energy enters through three channels: (1) direct energy inputs to sector j (captured in row coefficients for energy sectors), (2) indirect energy inputs embedded in intermediate goods purchased by sector j (captured through matrix multiplication in the inverse), and (3) energy embodied in the trade-margin and transport sectors themselves, whose own supply chains are traced by the same Leontief inverse (the SUT wedge determines the size of the margin slice of each consumer euro). The three energy-producing sectors – mining and quarrying (CPA_B, treated entirely as crude oil and natural gas using a SEAI-based 60/40 import-value split; FIGARO’s 64-product classification cannot separate non-fuel mining, a modest overstatement), refined petroleum (CPA_C19), and electricity and gas utilities (CPA_D35) – appear as distinct rows in A, and their contributions to final consumption are isolated by summing across all paths through the Leontief inverse that pass through these sectors. ↑
5. Note that another contributor is that the pass-through to liquid fuels is faster, while electricity prices may be passed through with a lag due to delays in increases to contractual prices. ↑
6. These are aligned with the ECB June 2026 macroprojection scenarios. ↑
7. The 60/40 split of oil and gas in CPA_B comes from SEAI data, refined petroleum is 100 per cent oil and electricity and gas utilities in Ireland are split with 16 per cent gas and 2 per cent oil, based on Eurostat data. ↑
8. Direct-channel responses apply assumed commodity-cost shares of each retail price (the remainder being excise, network charges, supply margins and the non-scaling portion of VAT): electricity 40 per cent (of the gas shock), gas 55 per cent, motor fuel 45 per cent, home heating oil 70 per cent, solid fuels 35 per cent oil plus 10 per cent gas, district/other heat energy 40 per cent gas. The calculation assumes full pass-through of the scenario shock to these commodity-cost shares. Weights are the HICP item weights (direct energy = 9.8 per cent of the basket). ↑
9. The scenarios in this Bulletin are estimated using NiGEM and COSMO. NiGEM is a global economic model developed by the National Institute of Economic and Social Research in the UK. The model documentation can be found on the NIESR website here. COSMO is a model of the Irish economy used by the Central Bank (see Bergin et al (2017) and Conefrey, O’Reilly and Walsh (2018)). The scenarios assume unchanged monetary and fiscal policy compared with the baseline. ↑
10. There are several reasons for these differing results. The scenario results presented here represent a mechanical, first round cost-push calculation that excludes the use of the full dynamic scenario paths, annual averaging, assumptions around margin absorption, in addition to broader assumptions on other consumer price categories and on demand and price-setting responses that are in part captured in the semi-structural models used for the Bulletin analysis. ↑
11. Government announces new package of fuel supports. Department of the Taoiseach (April 2026). ↑
12. The HICP category swung from -13.4 per cent in April to +10.6 per cent in May, before returning to +3.2 per cent in June as the base effect unwound.↑