The rate of inflation, already at an 11-year high, is set to increase further in the coming months, testing the Government's own forecasts of a reduction later in the year and intensifying European scrutiny of its management of the economy.
The latest figures, which showed prices rising by 4.3 per cent in the year to the end of February, were seized on by trade union leaders opposed to the new national agreement as evidence that its benefits were already being eroded.
The future direction of inflation is dependent on key external factors, including oil prices and the weakness of the European single currency, which is raising the cost of imports, particularly from Britain.
The publication yesterday by the Central Statistics Office (CSO) of the latest inflation figures coincided with a new report from the European Commission reiterating recent criticism of Irish economic policy as being inappropriate given existing "signs of overheating".
The report says it might have been appropriate to postpone the December tax cuts to alleviate demand pressures, but it acknowledges moves to restrain Government consumption and compliments the quality of public spending.
The CSO figures show prices are now rising at the highest rate since November 1989 with increases of 0.8 per cent in February. Economists expect the rate - already the highest in the EU - to continue to rise over the coming months, possibly exceeding 5 per cent before falling back later in the year.
But that will be determined by factors including oil price rises. If they are excluded, the inflation figure falls to 3.1 per cent. OPEC meets later this month to review last year's voluntary agreement to limit production, which has contributed to a tripling of prices to more than $30 a barrel.
But OPEC's secretary-general, Mr Rilwanu Lukman, said yesterday that producers should resist pressure to increase output sharply as a means of reducing prices. He suggested that a price of $25 a barrel would not be unreasonable.
The Government chief whip, Mr Seamus Brennan, predicted last night that inflation would fall to 4 per cent by the end of the year and would be down to 3 per cent early next year. But the Fine Gael spokesman for finance, Mr Michael Noonan, warned that wage inflation could cause a loss of competitiveness in the economy. SIPTU's president, Mr Des Geraghty, said the 4.3 per cent rate was well within the range predicted in negotiations on the new national agreement.
However, the inflation rate is running even higher - at 4.6 per cent - when measured on an EU harmonised basis.
Prices are also increasing across other EU states and an interest-rate increase is likely to be announced by the European Central Bank, either after its meeting tomorrow or at the end of the month. Overall, EU inflation was 2 per cent at the end of January.
The largest price increase in February was in clothing and footwear, which rose 8 per cent as the sales ended, although the weak pound also contributed. Over the past year tobacco has shown the biggest price rise at 17.2 per cent.