Dáil Éireann debate -
Wednesday, 3 Jul 1991

Vol. 410 No. 3

Written Answers. - Inflationary Trends.

John Browne

Question:

29 Mr. Browne (Carlow-Kilkenny) asked the Minister for Finance if, further to information given in reply to Parliamentary Question No. 2 of 22 May 1991, he will make a statement on the likely trend of inflation figures, based on figures over the past ten years.

John Browne

Question:

36 Mr. Browne (Carlow-Kilkenny) asked the Minister for Finance whether, further to information given in reply to Parliamentary Question No. 2 of 22 May 1991, he will make a statement on the percentage drop in inflation figures from (a) 1981-86 and (b) 1986-90.

Minister for Finance (Mr. A. Reynolds):

I propose to take Questions Nos. 29 and 36 together.

Future inflation will be determined by developments in import prices, international interest rates, domestic costs and taxation as it affects price-levels. Historic inflation figures play no role in its determination — apart from warning us against the necessity to be competitive with our trading partners. In this year's budget I forecast Irish inflation quite close to 3 per cent in 1991. Trends to date are consistent with an outcome of this order.

The rate of consumer price increases fell from 20.4 per cent in 1981 to 3.9 per cent in 1986; and fell further, to 3.4 per cent, in 1990. Key factors underlying the high rate of inflation in 1981 were increases in import prices of almost 19 per cent and of almost 17 per cent in hourly earnings in manufacturing, and significant upward pressure on prices from taxation changes. By contrast, in 1986 import prices actually fell — by over 11 per cent, as oil costs fell substantially and the value of the US dollar declined against the Irish pound; comparable wage increases were down to 7.1 per cent and taxation changes added 0.5 per cent to average inflation. In 1990, the comparable wage increase had fallen to 4.7 per cent and taxation changes ameliorated inflation by 0.5 per cent; but there was a lesser fall in import prices, of 5 per cent.

The lesson to be learned is that we can, ourselves, be significant contributors to high domestic inflation — through actions which demand increased taxation or by seeking income increases to compensate for imported inflation without corresponding national productivity increases. The responsible increases in incomes agreed under theProgramme for National Recovery and the Programme for Economic and Social Progress are combining with reductions in rates of taxation to moderate the domestic contribution to our inflation; at the same time the firm maintenance of our exchange rate within the EMS is ensuring that the external contribution, through import prices and interest rates, is minimised. The associated approach of fiscal discipline is, of course, a key factor underpinning that moderation of taxation and maintenance of exchange parity.

The policies adopted in theProgramme for National Recovery and confirmed in the Programme for Economic and Social Progress provide the basis for keeping Ireland among the low-inflation EC member states — as it currently is.