Inflation in Ireland as measured by the EU Harmonised Index of Consumer Prices has consistently been well below the EU and Euro Area average in the period 2008 -2012. This has played a major part in helping to restore a significant proportion of our competitiveness losses in the preceding years. Latest available data for the 12 month period to April 2013 indicates that Ireland continues to outperform most of our European counterparts.
The recently published Forfas report “Costs of Doing Business in Ireland 2012” is an important report in the context of our need to continue to build an export-led recovery. It looks at the relative importance of different areas of cost for different sectors.
The report indicates that business costs in Ireland have reduced significantly in recent years, with overall price levels in the economy falling back to levels last experienced in 2002. The improvement in business cost competitiveness has been driven by significant reductions in property related costs (in terms of purchase and rent levels) and falling prices across a range of professional and business services. There have also been relative improvements in labour costs in Ireland which fell on average by 0.9% per annum in the period 2008-2011, while labour costs increased in the euro area by 4.6% per annum on average in the same period.
However, while these improvements are very welcome and indicate that the economy is moving in the right direction, we must continue to focus on actions to promote further cost reductions across the economy. The Forfás report advises that over half of recent cost competitiveness gains are attributable to favourable exchange rate movements. The report also indicates that upward price pressure is beginning to emerge in some areas.
The Forfás report makes a number of recommendations aimed at further improving our cost competitiveness position in relation to labour, property, transport, utility and professional services costs. Part of the objective of the Action Plan for Jobs has been the development of proposals each year that can improve our competitiveness. The 2013 Action Plan includes a number of specific actions in this regard which address some of the areas highlighted in the Forfas report.
Action 126 of the Action Plan requires that Forfás will, this year, compare consumer price levels and consumer price inflation in Ireland with prices in our key competitors. They will identify the primary drivers of price and inflation differentials and assess the impacts of cost of living in Ireland on labour costs and other business costs.
The implementation of these Action Plan measures, combined with the Government’s broader agenda to enhance productivity, will play a key role in improving our competitiveness and realising our ambition of making Ireland the best small country in which to do business.