Bertie Ahern
Ceist:3 Mr. B. Ahern asked the Taoiseach the impact on the CPI of a 1 per cent rise or fall in interest rates. [1366/97]
Ceisteanna — Questions. Oral Answers. - Consumer Price Index.
The consumer price index — CPI — is compiled by the CSO from retail price quotations collected directly from a fixed panel of shops throughout the country and a range of postal inquiries. The CPI is carried out on a quarterly basis at present but will be conducted monthly from February 1997 onwards. Many factors, including movements in interest rates, influence the level of retail prices. The CSO does not separately analyse the impact of these general factors on the CPI. The index is, however, directly affected by changes in mortgage interest rates. Taking account of the ongoing increase in house prices and mortgage size, a rise of 1 per cent in rates would increase the all-items CPI by 0.42 per cent whereas a fall of 1 per cent would result in a decrease of 0.34 per cent.
Will the Minister give the likely inflation figure up to November 1997?
The consumer price index for mid-November shows an increase of 0.5 per cent over the mid-August figure, representing an annual inflation rate to mid-November of 1.9 per cent. The year to mid-November 1995 showed an annual increase in the inflation rate of 2.4 per cent. The annual average rate of inflation for 1996 was 1.6 per cent while the average rate of inflation for 1995 was 2.5 per cent. The all-items CPI continues to be the official national measure of inflation.
The inflation rate for the year to October for the EU as measured by the EU interim index of consumer prices — IICP — is listed as follows: Sweden, 0.3 per cent; Finland, 1.3 per cent; Germany, 1.4 per cent; Luxembourg, 1.7 per cent; France, 1.8 per cent; the Netherlands, 1.9 per cent; Austria, 2.2 per cent; Ireland, 2.3 per cent; Denmark, 2.6 per cent; Belgium, 2.6 per cent; Portugal, 2.8 per cent; the United Kingdom, 3.1 per cent; Italy, 3.2 per cent; Spain, 3.4 per cent and Greece, 7.9 per cent. The European average for the 15 countries is 2.4 per cent. We are, therefore, below the European average, in the first half of the league, and in terms of meeting the Maastricht criteria, taking inflation as one of the key factors, we are well on course to qualify for the economic and monetary union. I do not have the projected figure as requested by the Deputy.
While accepting that the inflation rate is at a reasonable level, in certain aspects such as house prices the inflation rate is dramatically more than that mentioned — it is about 15 per cent. Will the Minister acknowledge that no progress has been made in terms of keeping inflation down for the ordinary home buyer?
In the determination of the consumer price index, the capital cost of houses is not factored in, irrespective of the rate of increase in prices. It is the element of interest that is taken into account.
That shows how irrelevant it is.
In the harmonised index of consumer prices which will be brought on-stream shortly, housing will be excluded altogether to bring us into line with the system that applies in other European countries. In terms of standardisation of the calculation of inflation we are bound to adopt the same principles, practices and systems as operate in other EU countries, and that is what we are doing.
The CPI index as referred to by the Minister is not meaningful for a young couple buying a house because the inflation rate in that case is not 1.9 per cent but 15 per cent.
We are entering the area of policy.