Soaring house prices are damaging the economy by dissuading emigrants from coming home, Forfas said yesterday. The trend is contributing to a skills' gap, and could also push inflation higher, the State advisory board for industrial development said in its annual report.

The growth in property prices, especially in Dublin, had for the first time in a generation begun to put home ownership beyond the reach of younger workers, said Mr John Travers, the chief executive of Forfas.

"Moreover, property prices are reaching levels that discourage returning Irish migrant workers, whose skills and experience are an important factor in recent growth," he said. "Wage rates cannot remain unaffected by these trends."

Mr Travers noted "disturbing signs of an increase in inflation" indicated by upward movements in the Consumer Price Index. He linked inflation to growing skills gaps in certain key areas, such as the technology and construction industries.