Dáil Éireann debate -
Tuesday, 17 Nov 1998

Vol. 496 No. 6

Written Answers - Inflation Rate.

Bernard J. Durkan

Question:

278 Mr. Durkan asked the Minister for Finance if he has identified the cause or causes of increases in inflation in the past 12 months; the manner and method by which he proposes to address this issue; and if he will make a statement on the matter. [23880/98]

Bernard J. Durkan

Question:

280 Mr. Durkan asked the Minister for Finance if he has received any indication from the EU regarding inflationary tendencies in this country at present; the steps, if any, he will take in response to these issues; and if he will make a statement on the matter. [23882/98]

Bernard J. Durkan

Question:

287 Mr. Durkan asked the Minister for Finance if current inflationary trends present any threat to the future of the economy in view of Ireland's position in the context of other EU member states; and if he will make a statement on the matter. [23889/98]

Bernard J. Durkan

Question:

289 Mr. Durkan asked the Minister for Finance the measures, if any, he will take to protect the economy against inflation; and if he will make a statement on the matter. [23891/98]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 278, 280, 287 and 289 together.

As a small open economy, the inflation rate in Ireland is heavily influenced by the level of inflatin in our trading partners and by exchange rate movements. The upturn in CPI inflation in Ireland over the first half of this year largely reflects the strength of the currencies of our major trading partners and in particular sterling last year. This gave rise to a temporary increase in inflation in Ireland as higher import prices fed through into the prices of exchange rate sensitive traded goods. It is also likely to have impacted indirectly on non-traded goods and services prices in the economy reflecting the spillover from price increases in traded good inputs.

Subsequent movements in the effective trade weighted exchange rate, EER, is expected to alleviate upward pressure on prices. My Department's most recent inflation forecast — published inEconomic Review and Outlook, ERO, in July — was for an annual increase of 2.75 per cent in 1998 and an inflation rate of between 2 and 2.5 per cent in 1999 depending on the evolution of exchange rates. More recent indications are that the 1998 outturn may be somewhat lower than forecasted in ERO and with the progressive unwinding of sterling strength inflation seems set to decline towards 2 per cent in 1999.

The European Commission's autumn economic forecasts highlight inflation as the main treatment to the sustainability of Ireland's remarkable economic performance. However, the Commission also pointed out that the risk of higher inflation is lessened by the strong growth potential of the Irish economy. The gap which now exists between Irish inflation and inflation in the euro zone as a whole largely reflects low inflation rates now being recorded in such countries as Germany and France rather than a sharp and sustained deterioration in our inflation performance.

The 1999 budget will have as one of its primary objectives — against the backdrop of Ireland's membership of EMU from 1 January next — the achievement of low inflation and the maintenance of Ireland's international competitiveness. The need to maintain low and stable inflation in the economy is a critical element of the Government's medium-term strategy for achieving continued economic and social progress. This will require a continuation of the range of policies which have helped secure the exceptional performance of the economy in recent years, in particular pay moderation under social partnership, prudent budgetary policies and the maintenance of appropriate levels of investment in the economy's physical infrastructure and human capital.