Dáil Éireann debate -
Tuesday, 8 Apr 2003

Vol. 564 No. 5

Written Answers - Price Inflation.

Michael D. Higgins

Question:

20 Mr. M. Higgins asked the Minister for Finance the expected level of inflation for 2003; the way in which this compares with the Euro zone average; if his attention has been drawn to concerns expressed by the Central Bank that the level of consumer prices here is now more than 12% above the Euro zone average; the steps planned to reduce the level of inflation; and if he will make a statement on the matter. [9717/03]

Minister for Finance (Mr. McCreevy)

On budget day, inflation, as measured by annual changes in the consumer price index, CPI, was projected to average 4.8% in 2003. This forecast was, as always, based on the technical assumption of unchanged interest rates. My Department will publish a revised estimate in the Economic Review and Outlook in the summer. It is expected that inflation will moderate this year from March, reflecting, first, the fact that last year's increase in VAT will fall out of the annual comparison; second, that services sector inflation is moderating and, third, the recent interest rate cuts. In terms of EU comparisons, the appropriate measure of inflation is the harmonised index of consumer prices, HICP. HICP inflation for Ireland for 2003 as a whole was forecast to be 4.2% on budget day. The Commission's autumn forecast was that euro area inflation would average 2% this year.

The Irish price level has risen against that in the euro area in recent years and I am aware of the Central Bank's comments in this regard. The Irish price level has risen because Irish inflation has been exceeding the EU average for some time. This has been due partly to external factors such as the exchange rate, partly to the process of Ireland catching up in productivity terms with the rest of Europe and partly to domestic factors. However, we need to bring inflation down to levels comparable with those of our EU partners in order to maintain our competitiveness and to ensure that jobs are not lost. We must, therefore, concentrate our efforts on targeting domestic sources of inflation.

In this context, the pay arrangements set out under the draft new social partnership agreement, Sustaining Progress, are important. By ensuring that wage increases are kept to sustainable levels, we can continue to focus on our competitiveness and avoid losing jobs. Also important will be the implementation, over the next 18 months, of the anti-inflation initiative agreed by Government, employers and union leaders to target key domestic sources of inflationary pressure. I am also aware that keeping public expenditure on target will be important if our inflation rate is to moderate and new management and control mechanisms have been put in place to this end.