The Central Bank is responsible for the day-to-day operation of monetary policy, which has as its objective the achievement of price stability. Essentially price stability means low inflation, which has been a cornerstone of Ireland's economic success in recent years. As Minister for Finance, I am concerned about the possible emergence of inflationary pressures, including pressures in the housing market, in the context of the impact of inflation on the performance of the economy. The Deputy can be assured that my concerns in relation to inflationary pressures are conveyed, as appropriate, to the Governor and board of the Central Bank by the Secretary of my Department, who sits on the board of the Bank. At an operational level, I assure the Deputy also that officials of my Department and of the Central Bank exchange information on inflationary developments in the economy.
In its spring bulletin released last week, the Central Bank expressed concerns about the possible emergence of inflationary pressures in the economy, citing in particular the situation in the domestic housing market. While sharing the Central Bank's concerns in this regard, my Department forecasts a continuation of moderate inflation in 1997, with the consumer price index forecast to rise by just over 2 per cent for the year as a whole. This forecast is based on a number of factors. On the external front, the strength of the pound on a trade-weighted basis, combined with subdued international inflation, should exert a downward influence on Irish inflation. Domestically, the new national agreement, Partnership 2000, should ensure wage moderation over the next three years. A heightened level of competition in many areas of retailing, such as health insurance, mobile telephony and consumer electronics, should also prove helpful, as will the Government's commitment to a vigorous competition policy, as shown by the reconstitution, with new powers and greater resources, of the Competition Authority.
The rate of house price inflation, which is currently considerably higher than the general inflation rate, partly reflects the remarkable progress of the economy in recent years. Lower interest rates, changing demographics, increased incomes and unprecedented employment growth can all be related to the trend in house prices. Nevertheless, there are clear grounds for concern that persistent high house price inflation may generate inflationary pressures indirectly in other areas of the economy, perhaps mediated through what economists call a "wealth effect". Such a development would be detrimental to the interests of borrowers and lenders alike, the construction industry and the economy generally, and so the trend over the near term future will require close attention. I should add that the monthly statistics for inflation, which we are required to publish from this year, are available today for the month of February, and the figure is 1.5 per cent. The harmonised index of consumer price inflation for the whole of the European Union is 1.7 per cent.