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Dáil Éireann debate -
Tuesday, 27 Jun 2000

Vol. 522 No. 2

Priority Questions. - Inflation Rate.

Michael Noonan

Question:

10 Mr. Noonan asked the Minister for Finance if he will revise his estimate of annual inflation as a result of the most recent CPI; and if he will make a statement on the matter. [18200/00]

Derek McDowell

Question:

11 Mr. McDowell asked the Minister for Finance if he will give the projected level of inflation for 2000, having regard to the most recent figures showing a year on year increase of 5.2%; how this compares with the EU average; the steps he proposes to take to deal with the inflation rate in view of the serious implications for social partnership and economic development; and if he will make a statement on the matter. [18151/00]

Michael Noonan

Question:

12 Mr. Noonan asked the Minister for Finance the plans he has to introduce measures to reduce inflation; and if he will make a statement on the matter. [18201/00]

I propose to answer Questions Nos. 10, 11 and 12 together.

The most recently published inflation figures for Ireland which relate to May show a year on year increase of 5.2% in the consumer price index. Inflation is 5.1% on the basis of the harmonised index of consumer prices. This compares with 1.9% for the euro-11.

Inflation is now much higher than had been expected, and represents a disappointment to the Government. As Deputies are aware, there are several factors behind this, including the weakness of the euro, the upward trend in oil prices, the increase in excise duties on tobacco introduced for health reasons, higher inflation in the services sector and the ongoing increases in alcohol prices. In the coming months there will be a further uptick in inflation because of recent energy price developments and the recent increase in interest rates by the European Central Bank. As once-off and external factors become less important, however, inflation will begin to fall. The timing of this decline will depend to a large extent on exchange rate developments and the future price of oil.

A new set of macro-economic forecasts, including inflation, will be published as usual by my Department in the economic review and outlook in July or August. The Government is concerned about the possible impact of these developments on social partnership and economic progress and is committed to taking whatever action is possible. As Deputies are aware, wide-ranging measures in relation to housing have already been announced.

Promoting competition is essential in order to tackle inflation. Significant resources have been committed to the Competition Authority to enable it to tackle anti-competitive activity. The Government also believes that there is a need for specific, targeted interventions where measures to combat restrictive practices and to stimulate competition are proving difficult or are likely to take time to be effective. Measures in this regard are being prepared and full details will be announced shortly.

With regard to other measures proposed to reduce inflation, I can confirm to the House that no options put forward by the ICTU in this regard have been ruled out. In particular, careful consideration will be given to proposals in the context of preparations for the next budget in December.

Did the Government consider this matter at the Cabinet meeting this morning? If so, does the Minister not feel obliged to inform the House of decisions taken in view of Question No. 12 on the Order Paper, which specifically asks the Minister what measures he intends to introduce to combat inflation?

Since it was indicated in the newspapers that the Government was about to consider these matters this morning, I do not feel constrained by normal Cabinet confidentiality rules. This matter was considered at the meeting and at previous meetings. Announcements on foot of decisions made by the Government will be made later.

That is not good enough. This is the national Parliament. There is a question asking the Minister what measures he proposes to take and he is suggesting that the Government has made decisions. He has an obligation to inform the House. It is not acceptable when the Government has made a decision to deny that information to the House and to make announcements outside the House for public relations reasons. The Minister should inform the House of the measures.

The Deputy is aware that the Government would have been considering a package of measures. He will also know that the Government met the ICTU last Wednesday and the IBEC later in the week. Various proposals have been put forward covering a number of areas of activity. The Government has considered the proposals and made some suggestions of its own. The measures will be announced later.

The Minister for Finance is responsible for taxation measures. There are no taxation measures in the package which will be announced nor will there be anything which comes directly within my remit. It will be the job of other Ministers to deal with those matters. The Minister for Finance deals with matters within his remit, but most of the matters referred to in the package cut across a range of Departments.

I am flabbergasted by the Minister's response. The Minister started by saying that the Government had made decisions this morning. He then suggested that he is not answerable to this House in relation to inflation. Inflation is the one issue in terms of economic management which is driving the economy off the rails, but the Minister comes into the House and tells us he is not responsible.

The Deputy must ask a question.

We might as well pack our bags and go home. There are three questions about inflation on a day when the Cabinet made decisions and we are told to wait for a press statement.

Question Time is for the purpose of eliciting information from the Minister.

I am doing precisely that but the Minister is refusing to answer questions about decisions which were taken today.

The Deputy is taking up the time making a Second Stage speech which he should be using to ask a question. There will be no time for the Minister to reply.

If the Minister will answer, that is well and good.

I never said I am not responsible for inflation. Every member of the Cabinet has individual responsibility and through collective authority responds to all other areas of Government policy. I have said that the measures which will be announced do not impinge on taxation.

Has the Government decided that—

The Minister must be allowed to respond.

The Government, this week and previously, discussed all aspects relating to inflation. Last week it met the social partners. An announcement of measures will be made in the near future. It is not possible for me to announce the measures this afternoon.

There will be adequate time to discuss the matter later in the week if the Deputy so wishes. I am pointing out that no decisions relating to taxation are part of the package at this time. The package of measures will be announced later by the Government.

The Minister is, therefore, not answerable to the House on this?

Inflation is the most serious threat facing the State at present. The Government has come to some decisions in relation to inflation. Is the Minister refusing to inform the House what those decisions are? Is the Minister, in avoiding Question No. 12, suggesting that he, as Minister for Finance, is bringing forward no measures whatsoever to combat inflation? Will the Minister answer Questions Nos. 10 and 11? What is the Minister's estimate for annual inflation?

During our last Question Time, I revised upwards the annual figure for inflation. I said in my reply then that when we publish our normal mid-year review, the Department economic review and outlook, in late July or early August we will publish the new figure, as has been the custom until now.

To answer the specific question, inflation will be greater than the amount set out at the time of budget. The figures for the past months will be analysed and extrapolated forward. The new figure for inflation will be ahead of the projected budget figure – recently I predicted that it will be in excess of 4%. The picture will become clearer when the mid-year figures become available. The ESRI recently predicted that the average inflation rate for the current year will be of the order of 4.8% and that it will decrease to 3.2% in 2001. However, as stated on many occasions, our predictions and those of the ESRI and the Central Bank are subject to the usual caveats such as oil prices, exchange rates, etc.

Deputy Noonan specifically inquired whether I agree that inflation is the major factor affecting the economy at present. It is only one of a number of such factors. One must bear in mind that Ireland's economic growth rate during the past five years has averaged 5% per annum whereas the EU average for the same period was only 2.2%. During the period in question, employment in Ireland grew by an average of 4.8% per annum whereas in other EU member states it grew by 0.8%. As stated on previous occasions, these matters must be considered in conjunction with each other. Another factor which must be taken into account is that the rate of unemployment in Ireland is now less than 5%.

The Minister is filibustering. I put it to him that on budget day his estimate of annual inflation was 3%, on the last occasion he replied to questions in the House he raised that estimate to 4% and he now appears to be relying on the ESRI forecast rather than on that provided by his Department. Do I take it the Minister believes inflation for this year will be not less than 4.8%?

As I have pointed out on many occasions to the Deputy, when we are making predictions about inflation we take account of the parameters which apply at a particular point. I stated that inflation will be in excess of 4%, on average, for the year 2000. I also stated that it would increase in the middle of the year and, given the normal caveats to which I referred, should then decrease.

What is the Minister's estimate of annual inflation? Ministers for Finance, since the foundation of the State, have been answering that question.

On budget day, Ministers for Finance give their estimate of inflation for the following year in light of the parameters which apply at that point. It has been normal practice for many years that in mid-year we produce our normal departmental review and revise upwards or downwards not only the figures relating to inflation but also those relating to budget surpluses, revenue and expenditure. That will also be done in the normal way this year.

It is important to emphasise that this is not just an academic question. There are people on fixed incomes, such as social welfare beneficiaries, who received an increase of 5% this year. The Minister has just signed off on a partnership agreement which provides for increases of approximately the same measure. If I understood his earlier reply – I stand open to correction – he stated that there would be a further uptick in inflation.

The Deputy is correct, that is what I said.

Do I take it that means that there will be further uptick from the current rate of 5.2%?

I stated that there would be further uptick in inflation due to a number of factors, the most recent of which was the recent increase in interest rates by the European Central Bank. If that increase is passed on, it will push up the year on year increase as measured month by month. Most economists believe the best way to dampen inflation is to increase interest rates, thereby removing demand, etc., from the economy. However, when increases in interest are passed on, the consumer price index is pushed upward. We expect that, due to these factors, there will be an uptick in inflation.

Last month, one of the reasons for the upward surge in inflation was the increase in food prices. This increase related primarily to the sudden rise in the price of potatoes which came about as a result of climatic conditions. No one could have predicted this development. The recent increase in interest rates by the ECB should mean that there should be a further rise in inflation next month. However, as matters begin to settle during the next 12 months and given the usual caveats, inflation should fall.

Before the Ceann Comhairle entered the Chamber, the Minister refused to inform the House about decisions taken by the Government at today's Cabinet meeting to combat inflation. Will the Minister indicate if the Government has decided to introduce maximum prices orders in respect of the drinks trade or any other retail trades?

I stated earlier that full details of the Government's decision would be announced shortly. Information on the package of measures the Government intends to introduce will be made available to the Deputy at that point. There is no need to get excited at this stage of the afternoon.

I am getting excited because this is the national Parliament and questions were tabled to the Minister for Finance which ask him to supply specific information. He has had these questions in his possession since last week and is refusing to inform the House about the measures the Government has taken. The Minister is aware that this is the last series of finance questions to be taken in the current session because the House will go into recess on Friday and he is putting in another disgraceful performance. His arrogance is insulting to Dáil Éireann. The Minister will not provide information—

A question please, Deputy.

I put it to the Minister that he is arrogantly insulting the House because he has information in his possession which he is refusing to give to Members and which will be announced later in the evening, outside the House, when there is no Deputy present to pose supplementary questions.

The text of Question No. 10 in Deputy Noonan's name is "To ask the Minister for Finance if he will revise his estimate of annual inflation as a result of the most recent CPI", while that of Question No. 12 is "To ask the Minister for Finance the plans he has to introduce measures to reduce inflation; and if he will make a statement on the matter." Those are the questions to which I replied. I have been as open with the Deputy as I normally am in providing replies to his questions.

The Minister is not being open with anybody, he is dodging the issue.

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