ICTU has recommended that unions representing private sector workers should seek pay increases of between 2.5% and 4.5% this year. The advice, from ICTU’s Private Sector Committee, is informed by economic analysis from the union-backed Nevin Economic and Research Institute (NERI).

NERI says unemployment is expected to fall this year, and that Ireland will reach near-full employment in 2023. This projection assumes that the effects of Covid-19 will have diminished or been eliminated completely in the coming year, leading to strong economic growth in 2022.

But ICTU says it will be keeping a close eye on inflation over the coming months after the consumer price index (CPI) rose by 5.5% in December. This was the highest rate of price increases recorded in Ireland since 2001.

NERI’s projections anticipated unusually high inflation in late 2021 and the first two or three months of 2022. This is being driven mainly by a spike in energy prices, with increased costs of housing, transport and some foodstuffs contributing too.

Most, though not all, economists expect to price rises to ease by the spring of 2022. But the situation is uncertain, and it’s likely that the ICTU pay target recommendation will change if inflation remains high in the second quarter of 2022 and beyond.

For now, NERI believes that inflation will peak in the fourth quarter of 2021, before settling back to around 2% in the second half of 2022 and remaining close to that figure after that. If that is correct, wages will need to grow by more than 2% to keep pace with the cost of living.

The Central Bank is currently projecting average annual inflation of just 1.6% in the 2020 to 2023 period.

The head of Fórsa’s Services and Enterprises Division, Ashley Connolly, said the outlook for wage growth was positive, but that it would vary across different sectors of the economy.

“Throughout 2021 Fórsa secured pay increases through collective bargaining across multiple organisations. On average, our members saw yearly earnings increase by 2.5% or more on average. The sole exception is transport, which suffered significantly due to the impact of the pandemic,” she said.

NERI also noted that average private sector weekly earnings have increased by 8.8% over the past two years, compared with 8.9% in the public sector.