Dáil Éireann díospóireacht -
Thursday, 24 Jun 1999

Vol. 507 No. 1

Written Answers. - Inflation Rate.

Derek McDowell

Ceist:

36 Mr. McDowell asked the Minister for Finance his views on whether the current depreciation of the euro presents a risk of inflation in Ireland; if he has communicated with the Economic Policy Committee or the ECB on this matter; if so, the nature of this communication; and if he will make a statement on the matter. [16128/99]

Brendan Howlin

Ceist:

37 Mr. Howlin asked the Minister for Finance if he will make a statement on the increase in the annual inflation rate indicated by the most recent monthly statistics. [16131/99]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 36 and 37 together.

The Consumer Price Index for May showed an inflation rate of 1.5 per cent compared to 1.4 per cent for the previous month. Excluding mortgage interest effects, inflation rose to 2.6 per cent in May from 2.3 per cent in April. The year-on-year increase in the harmonised index of consumer prices stood at 2.3 per cent in May compared with 2.0 per cent in April. The most notable price changes in the year to May, were in services and related expenditure (+4.3 per cent), food (+3.1 per cent), tobacco (+3.3 per cent), housing (-10.7 per cent) and clothing and footwear (-6.5 per cent).

Reflecting the recent rise in international oil prices and changes in the euro/dollar exchange rate, transport (+0.9 per cent) and light and fuel (+0.6 per cent) showed large monthly increases in May. Alcoholic drinks showed a monthly increase of +1.5 per cent, reflecting a recent general rise in prices.

Prospects for the rest of the year are dependent on a number of factors. On the negative side inflation in the services sector is running at over 4 per cent on a year to year basis. This is a cause for concern and indicates the existence of dom estic inflationary pressures. International commodity prices, which have been very low until recently, are also increasing modestly with the prospect of further increases in the months ahead. In addition, as the large falls in mortgage rates at the end of last year fall out of the year-on-year comparison, this will see the headline CPI increase towards the end of the year.

On the positive side, food prices should put downward pressure on the CPI. Last autumn, food prices rose sharply reflecting supply problems. These price increases are unlikely to be repeated this year.

Since the beginning of the year the euro has fallen by about 7.6 per cent against sterling and by 11.3 per cent against the dollar. Although not strongly in evidence to date, imported inflation could become a factor if the present parities were sustained, in view of Ireland's substantial dependence on international trade. The degree to which this might occur is, of course, critically dependent on the pricing response of UK suppliers, in particular, to the evolution of the euro-sterling parity. Overall it is forecast that the CPI will increase over the course of the year but the average for the year as a whole is likely to be lower than the budget day forecast of 2 per cent.

Neither I nor my officials have communicated with the Economic Policy Committee or the European Central Bank on the effects of the recent depreciation of the euro on Irish inflation.