A new Central Bank analysis has warned that there is a risk that inflation may persistently overshoot the current ECB target if supply chains remain disrupted and that feeds into higher wages and prices.
However, the economic letter also says this is not the most likely scenario.
The study finds that inflation in the cost of services has been the largest contributor to the overall trend of rising prices in Ireland this year.
The report states that similar to the wider euro area, surging energy prices have accounted for a large share of the overall inflation rate.
But overall, the price of services have risen 4.6% in the year to October, compared to a 1.8% rise in the cost of goods and food.
Before the pandemic struck, the cost of living had remained steadily low in the euro area and lower than the ECB's long-running target level of 2%, it says.
Costs then fell further when the coronavirus emerged, with the Irish and euro zone cost of living turning negative as lockdown restrictions restricted whole economies.
However, since the start of the year, inflation has been steadily rising again as the effects of the Covid-19 pandemic began to ease and recovery took hold.
Supply and demand is mismatched, the letter says, leading to transport and supply chain disruption that have propelled sharp increases in prices, particularly raw materials, commodities and other goods used to make other products.
As a result, across the eurozone inflation is estimated to be running at 4.1% and here in Ireland it is currently 5.1%, as the extra costs get fed through to consumer prices for goods and services where it is driving wage increases in some sectors.
The overall impact of the jump in energy costs across the euro area is disproportionate, the paper finds, with energy prices accounting for around half of inflation as measured by the Harmonised Index of Consumer Prices (HICP) last month.
This is despite the fact that energy costs only account for around 10% of the HICP.
Stripping out energy, euro area inflation in October was around 2%, the paper by David Byrne and Zivile Zekaite explains.
The ECB is currently forecasting that inflation across the eurozone will average out at 2.2% this year, and drop to 1.7% next year and 1.5% in 2023 as the impact of soaring energy costs and supply chain problems abate.
The researchers say there is a risk that inflation may persistently overshoot the current ECB target of 2% if supply chains remain disrupted and that feeds into higher wages and prices.
But they also say this is not the most likely scenario.
The authors conclude that policymakers have to be ready to act should inflation remain unsustainably high, but must also not overreact in case their actions would unwind the economic recovery from Covid-19.