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Economic Competitiveness

Dáil Éireann Debate, Wednesday - 5 July 2017

Wednesday, 5 July 2017

Questions (84, 87)

Bernard Durkan

Question:

84. Deputy Bernard J. Durkan asked the Minister for Finance if he has satisfied himself that there are no inflationary tendencies which might jeopardise economic progress; and if he will make a statement on the matter. [31754/17]

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Bernard Durkan

Question:

87. Deputy Bernard J. Durkan asked the Minister for Finance the sectors of society most likely to be at risk in the event of the emergence of a lack of competitiveness through inflation in the economy; and if he will make a statement on the matter. [31759/17]

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Written answers

I propose to take Questions Nos. 84 and 87 together.

Over the past few years consumer price inflation has been near zero in Ireland and in the euro area more generally. In 2016 annual inflation in Ireland – as measured by the Harmonised Index of Consumer Prices (HICP) was slightly negative at -0.2 per cent.

Despite the boost earlier in the year – when inflation was supported by temporary factors like higher energy prices – inflationary pressures have remained muted into 2017. This is largely due to the recent fall back in oil prices and the continued impact from previous euro-sterling exchange rate developments. Looking forward, futures markets for oil are suggesting oil prices will continue to stay around their current low levels over the course of 2017. Against this, the continued growth in domestic demand and the ongoing recovery in the labour market are expected to lead to further services price inflation. Taking all these factors into account, price pressures are expected to rise only very modestly in 2017. In the Stability Programme Update 2017, my Department forecast HICP annual inflation of 0.6 per cent for this year, rising gradually to 1.2 per cent in 2018. These forecasts will be reviewed and updated in preparation for the Budget, which will be published in October this year.

While consumer price inflation is not expected to rise dramatically over the near term, my Department continues to monitor inflation developments very closely. Any emergence of sustained price inflation would put pressure on the competitiveness of those sectors that are heavily dependent on exports. This is particularly true for the indigenous manufacturing sector, the agrifood sector and price sensitive service sectors such as tourism. In this regard, it is important that, at firm level, overall costs do not get out of line with our competitors and that pay moves in line with productivity developments.

This government will therefore continue to implement competitiveness oriented policies which is the best way domestically to counteract any inflationary tendencies and potential loss of competitiveness.

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