Dáil Éireann debate -
Tuesday, 17 Nov 1998

Vol. 496 No. 6

Written Answers - Price Inflation.

Bernard J. Durkan

Question:

41 Mr. Durkan asked the Minister for Finance if his attention has been drawn to the fact that Ireland's inflation rate is higher than most other EU states with particular reference to EMU; the action, if any, he will take to correct this trend; and if he will make a statement on the matter. [23725/98]

Minister for Finance (Mr. McCreevy)

As a small open economy, the inflation rate in Ireland is very heavily influenced by the level of inflation in our trading partners and by exchange rate movements. The combination of this factor, the success of social partnership, and the increasing competition in the retail sector has meant that in the five years to end 1997 our inflation rate, at an average of 1.9 per cent, was consistently below European levels which averaged 2.8 per cent.

As the Deputy has correctly noted, inflation in Ireland in 1998 is above that of the EU. In the year to September — the latest period for which EU comparable harmonised index of consumer prices figures are available — inflation in Ireland rose by 2.8 per cent as compared with 1.2 per cent for the EU as a whole.

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 goods inputs.

Subsequent movements in the effective — trade weighted — exchange rate is expected to alleviate upward pressure on prices. My Department's most recent inflation forecast — published inEconomic Review and Outlook 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.

I will, in the context of next month's budget on 2 December, be updating my forecast for inflation in 1998 and setting out a projection for the next three years. 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.