Written Answers - Inflation Rate.
John Gormley
Question:
26
Mr. Gormley
asked the
Minister for Finance
his views on the most recent OECD report which indicates that Irish entry into EMU will be a major contributing factor in creating overheating conditions in the Irish economy.
[9543/98]
John Gormley
Question:
31
Mr. Gormley
asked the
Minister for Finance
his views on the most recent OECD report which predicts that Ireland will have the second highest rate of inflation in 1999; and the antiinflationary measures, if any, being adopted.
[9542/98]
Deirdre Clune
Question:
33
Ms Clune
asked the
Minister for Finance
the discussions, if any, he has had with the social partners on the threat posed by inflation on the social partnership; and the action, if any, he proposes to take to reduce this threat.
[9612/98]
Denis Naughten
Question:
42
Mr. Naughten
asked the
Minister for Finance
his Department's most recent estimate of annual inflation; and the factors which have caused the change in this estimate since budget day.
[9608/98]
Breeda Moynihan-Cronin
Question:
52
Mrs. B. Moynihan-Cronin
asked the
Minister for Finance
if he is concerned at the acceleration of price inflation as evidenced by the February CPI figures.
[9525/98]
I propose to take Questions Nos. 26, 31 to 33, inclusive, 42 and 52 together.
The original 1997 budget day forecast for consumer price inflation was 2.2 per cent, whereas the final outturn for the year was 1.5 per cent. My forecast for inflation in 1998 and 1999, as published in my December budget, was 2 per cent in each year. This was based on unchanged interest and exchange rates prevailing at that time. The degree to which the fall in our Effective Exchange Rate over the last year or so will impact on inflation is uncertain, but undoubtedly it could have some impact.
To date, despite an approximate fall in our EER of about 3.5 per cent since the end of November, the impact has been fairly muted. Obviously changes in interest rates as well as future movements of sterling will be important; most commentators expect sterling to depreciate in the next 12 months or so and this would help keep Irish inflation low. It is too early to say that my forecast will be significantly exceeded, but obviously it will be kept under review. A revised forecast for 1998 will as usual be published in the mid-year Economic Review and Outlook.
While the year-on-year increase in the consumer price index for February was 1.7 per cent, and 2.1 per cent in March, the rise in the first quarter of 1998 over the corresponding period of 1997 was 1.9 per cent. Our inflation rate, therefore, remains moderate. The measures announced last week by my colleague, the Minister for the Environment and Local Government are designed to deal with specific situation in the housing sector.
The range of forecasts for inflation for this and next year is wide. Commentators have been confused by the fact that different measures of inflation are being used which often means that they are not comparing like with like. Personal consumption deflators, which some use, do not include the impact of mortage interest rates. The consumer price index, on the other hand, includes the impact of mortgage interest rate changes. The OECD have forecast 3.1 and 3.3 per cent as the personal consumption deflators for 1998 and 1999 respectively. They have however not published a CPI forecast. I would consider these and other equivalent forecasts to be on the high side.
Keen competition in the domestic retail market is likely to continue, with the arrival of more UK retailers. International inflation remains subdued, particularly commodity and oil prices, and this will benefit consumer prices at home. So too will the fact that higher retail sales volumes allow retailers to absorb cost increases without increasing prices. These factors will continue to influence prices in the period ahead. In addition, fiscal policy and our social partnership arrangements should continue to ensure that our low inflation environment will continue under Economic and Monetary Union.
