Bertie Ahern
Question:55 Mr. B. Ahern asked the Minister for Finance if it is possible to estimate the CPI impact of every 1 per cent change in the value of the Irish pound against sterling, the dollar and the deutschmark. [23992/96]
Written Answers. - Exchange Rate Movements.
Exchange rate movements can have a significant impact on inflation, especially in an open economy such as Ireland where exports and imports of goods and services together account for over 160 per cent of GNP. Other things being equal, a sustained trade-weighted exchange rate depreciation can be expected to lead to higher inflation, and a sustained trade-weighted exchange rate appreciation to lower inflation.
However, measuring the effect of exchange rate changes on inflation is complex. It is difficult to estimate the CPI effect of a given change in a bilateral exchange rate, since for example other bilateral exchange rates may simultaneously move in a different direction. In addition the other determinants of inflation would also have to be examined in the context of any given set of exchange rate movements to assess the net impact on the CPI. These determinants include factors such as the level of wages, productivity changes and the degree of competition in the market place.