CONSUMERS face significant price increases in a wide range of goods including food, magazines and clothing, if the pound remains at its current low levels against sterling.
Analysts warn that retailers will not be slow to pass on price rises to consumers. "Magazines will probably be the first to rise, followed by clothing, footwear and some foodstuffs," Mr Jim Power, chief economist at Bank of Ireland Treasury, said.
The pound briefly traded below parity against sterling yesterday, before closing in late dealing at exactly 100p sterling. It is now trading at its lowest level against sterling for over 18 months, as the British currency continued to rise sharply following Wednesday's UK interest rate rise.
While the pound has been falling against sterling, it has been rising sharply against other currencies such as the deutschmark making it the strongest currency in the ERM.
The pound's fall against sterling will force retailers to pay higher prices for goods imported from Britain. In a small economy this could quickly feed through to higher inflation, although the Central Bank will hope the rise against the other EU currencies will limit this threat.
Analysts warn that a weakened pound against the currency of our main trading partner, combined with a giveaway Budget before the next election, could fuel a more general rise in inflation. This will worry the Central Bank, as next year's inflation rate must be kept close to that of our EU partners if Ireland is to qualify for the single currency.
The circumstances are disturbingly similar to Britain just before its inflationary boom in the late 1980s, Dr Dan McLaughlin, chief economist at Riada Stockbrokers, warned.
"At that time the UK authorities attempted to track the deutschemark and sold serious amounts of sterling to do it. Our Central Bank has been selling pounds in recent weeks, forcing the currency down, in an attempt to do the same thing."
Nevertheless, the fall in the pound will be welcomed by exporters whose margins have been under pressure because of the pounds' relative strength against sterling.
There have been calls from low margins sectors for Government assistance as the pound rose as high as 104p sterling.
Sterling's strength will also mean better value for British people holidaying here, but will mean shopping in the North or in Britain will be more expensive.