Vol. 420 No. 4
11 Mr. McCartan asked the Minister for Finance the estimated level of inflation for 1992 based on the information available to his Department; if his Department has identified the factors contributing to the recent rise in inflation; and if he will make a statement on the matter.
99 Mr. Barry asked the Minister for Finance if he will outline the reason for the increase in the inflation rate to 3.7 per cent.
I propose to take Questions Nos. 11 and 99 together. The projected rate of increase in the consumer price index in 1992, as indicated at the time of the budget, is 3¾ per cent. The most recent available consumer price inflation figures are those for mid-February 1992. These showed a quarterly increase of 0.8 per cent, with a year-on-year rise of 3.7 per cent in the consumer price index. It is likely that the mid-May quarter of 1992 will see an increase in the year-on-year rate, partly due to measures announced in the budget. In the second half of the year, however, it is expected that the rate will begin to fall. While there should be no complacency about a prospective rate of inflation to 3¾ per cent for the year as a whole, at this level Irish inflation would remain comfortably below the EC average.
As to the other matters raised, I assume that the Deputies are concerned with factors which may have contributed to the increase in the year-on-year rate of inflation from 2.6 per cent at mid-February 1991 to 3.7 per cent at mid-February 1992. Import price trends are one explanatory factor. Import prices, which fell during 1990, rose somewhat during 1991. In addition, as indicated by the constant tax price index, published by the CSO, tax measures may have accounted for about one-quarter of the acceleration. Food prices, which fell marginally during 1990, also rose during 1991. However, the rate of price increase in certain other elements of consumption also accelerated, to a degree not clearly explained by either import price trends or taxation measures. In particular, the rate of price increase for ‘Services and Related Expenditure' accelerated from 4.1 per cent in the year to mid-February 1991 to 5.0 per cent in the year to mid-February last.
It is good to hear the Minister say he expects the rate to fall during the year. That is very welcome news. Will he indicate how he believes that will arise? He indicated that the rise between last year and this year related to the extent of about a quarter to the budget provisions and the increase in the price of food and services. What aspect of the budget accounted for that quarter of the increase? Was it the increase in VAT? What were the factors in the rise of the cost of food and services?
The indirect tax element of VAT had an effect on the quarter to May. That will be out of the system for the remainder of the year. The items which show a higher than average increase over the past year are services, ranging from meals to electrical repairs, motor insurance, bus, rail and other travel, entertainment charges and medical fees. The key contributors to the quarterly increase of 0.8 per cent to mid-February were increased food prices, which added .22 per cent to the index, higher drink prices which added .2 per cent, tobacco and cigarette prices which related to the budget increases, housing costs which added 2.4 per cent and the rise in services-related expenditure which added 1.6 per cent. Services-related expenditure covers a long list of services. There are indications of a slowdown in that area but 5 per cent in the year to February is far too high.
In respect of the increase in prices in the services sector which the Minister says is above average, has that been the trend in previous years? Can it be explained by the fact that the services sector is less open to foreign competition than manufacturing? Much of the services sector is subject to restrictive licensing or monopoly arrangements administered by the State which may give greater facility to increase prices above what is justified.
The increase in the services sector is mainly in areas related to entertainment in the broadest sense, from cinema to concerts, food and drink. This is where people are targeting their disposable income. I have been in regular contact with the Department of Industry and Commerce about this. In other areas figures are fairly well on target. There were significant rises in some areas in the February to May quarter last year but they seem to have slowed down. The European figure is about 4.6 per cent and we should end up around 3.7 per cent. I do not want to give the impression that I am satisfied with that figure. Pressure has to be maintained to get it as low as possible, despite the fact that it is lower than the European average.
