How did Ireland become Europe’s second most expensive country?
Analysis: We’re near the top of this league table due to economic growth, rising demand, government policies and unique socio-geographic characteristics
Ireland is the second most expensive country in Europe, a fact that probably doesn’t surprise many people living here. Only Denmark had a higher consumer price level, with the cost of Irish goods and services 38% higher than the EU average. This is one league table that we don’t want to be at the top of, so is there any way to lower price levels and why is it that Ireland is so expensive?
Breaking down the overall price level into different categories gives us an idea of which goods are particularly costly for Irish consumers. When it comes to clothing and footwear, prices in Ireland are about average. But we pay nearly 15% more for groceries, 17% more for energy, and a whopping 105% more for alcohol and tobacco than average prices in other European countries.
There are some common factors across all categories that feed into higher price levels in Ireland. As an island with a relatively dispersed population, transport costs for goods are higher, and given our small population, markets here are less competitive, which leads to higher prices. Although these are inherent issues not easily addressed, policy choices by government have also fed into higher prices overall and in different sectors.
The cost of alcohol is much higher for Irish consumers than for many of our central European counterparts due to a combination of higher taxes and minimum unit pricing. Taxes differ across different types of alcohol, but are higher here on average. For example, within the EU only Finland has a higher excise duty on beer.
Additionally, the introduction of minimum unit pricing for alcohol in 2022 further increased the cost, both by removing cheap alcohol options and banning special offers that reduced prices below the set minimum unit price. The cheapest price a bottle of wine can be sold for in Ireland is now around €8. For comparison, the average cost of a bottle of wine in Portugal is €4.
Although these policies are sometimes criticised for placing an undue burden on consumers, particularly those who drink responsibly or who are on low incomes, they increase the price of alcohol to better reflect the societal cost of alcohol consumption. The economic costs of alcohol include an additional burden on health services, alcohol related crime and road accidents, and lost economic output.
The most recent estimates from 2014 found the cost of alcohol related harm in Ireland to be €2.35 billon. There is a good evidence base for using minimum pricing to help reduce these harms, and some evidence to suggest that the policy has already reduced the burden on the health service and the average level of alcohol consumption in Ireland.
The high cost of energy here is also partly explained by policy choices. We remain dependent on fossil fuels and import much of our energy, leaving us vulnerable to external shocks such as the supply chain disruption and massive increases in energy prices resulting from the war in Ukraine. Although there have been increases in renewable energy generation in Ireland, planning and regulatory delays for new projects are adding an estimated 10% to wholesale electricity costs.
The demand for electricity is also increasing substantially, with data centres now using 22% of all metered electricity in Ireland. If electricity demand keeps increasing, we are simply running to stand still when it comes to the development of new energy infrastructure. Costs to consumers will remain high, and the environmental impact will be even higher, with further additional costs to consumers that will be incurred in the future if we fail to meet our legally binding emissions reduction targets.
Government spending decisions have also added to the high price level in Ireland over recent years. Despite committing in 2022 to limit increases in spending growth year on year to 5%, spending increases have been substantially higher each year since. In a strong economy this additional spending increases demand, which in turn increases price levels. The Central Bank estimated that these rule breaches in 2022 and 2023 added about a half a percentage point to inflation each year. To put that into perspective, Government overspending added at least €1,000 to the average household’s annual costs.
While we do have very high prices in Ireland, we also have very high wages. Ireland’s average full time annual salary ranks third among EU countries, behind only Denmark and Luxembourg. As prices in a country increase, employees demand higher wages, and this can further increase the price level, leading to an inflationary spiral.
Although prices in Ireland are 38% higher, salaries are 55% higher than EU average, which means the purchasing power of those at the upper end of the income distribution is higher than their European counterparts. However, while many households in Ireland are able to afford the high costs of goods and services here, a significant minority are experiencing enforced deprivation. In 2024 almost 16% of people could not afford two or more items on a list of 11 essential items such as a meal or drink with friends once a month.
Economic growth, rising demand and government policies, together with the inherent characteristics of the Irish market, have led to us having the second highest price level in the EU. Although many households are happy with the status quo, others are struggling. While a rising tide lifts all boats, it is clear that a growing economy does not.
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