Vol. 552 No. 3
31 Mr. M. Higgins asked the Minister for Finance the projected level of inflation for 2002 based on the latest information available to his Department; the way in which this compares with the projected EU average; and if he will make a statement on the matter. [12408/02]
Inflation, as measured by annual changes in the consumer price index, is projected to average 4.2% this year. Assuming there is no sustained increase in oil prices, the annual rate of increase is expected to moderate over the months ahead from the 4.8% recorded last month. This moderation is expected because weak global demand in the first half of this year should constrain international inflationary pressures. In addition, food prices are unlikely to increase as greatly as they did last year due to foot and mouth restrictions. The CPI is expected to average 2.8% in 2003.
In making EU comparisons, the appropriate measure is the EU harmonised index of consumer prices, HICP. While inflation here is expected to be about 4% this year, on a HICP basis, indications are that the EU average will be of the order of 2%. Inflation is higher in Ireland than in the rest of the EU partly due to the strength of domestic cost pressures. It is important that these cost pressures are not allowed to lead to deteriorating competitiveness which would reduce growth and result in higher unemployment. That is why wage moderation and moderation of costs generally is so important.
I put to the Minister the comments made in the quarterly review of the ESRI which express concern about an inflationary spiral which would result from excessive wage demands. What is the Minister's view?
Annual services sector inflation was 8% in March and has been running at over 7% for some time reflecting the strength of domestic demand and underlining the risk to our competitiveness of wage increases. The ESRI rightly points out, as any sensible commentator would, that if one loses competitiveness one will have a spiralling effect which will lead to loss of markets. Consequently, jobs will be lost creating unemployment and less activity which brings one into the spiral of increasing taxation. We have moved away from that and the ESRI is rightly pointing out that we must be very conscious going forward of the dangers to our competitiveness. The review also states that a reality check is needed regarding wage negotiations and if there is to be a successor to the current partnership agreement, it will have to be based on market realities. Deputy McDowell will know from meetings of his colleagues in Europe that our competitors there are talking about very low wage increases. There are some disturbances in Germany because of discrepancies between what the unions want and what is on offer. Everybody is talking about low wage increases. That will be a matter for negotiation when and if the partners get around the table.
Is this emergency ward 10 or is it Dáil Éireann? I see Deputy Owen is on crutches.
I thought Deputy Owen and Deputy Jim Mitchell were getting up for us. The reply has not fallen yet and they are being put down.
It goes to show how bad the finances are.
I wish Deputies Mitchell and Owen a speedy recovery.
After the election.
I wish it to them even during the election.
Dealing with inflation is the main task going forward and wage demands are for the partners to agree in the successor talks. The ESRI has used the phrase "reality check" in describing what is needed. That is the view of an independent economic think tank and we would expect no less.
Does the Minister accept the contention of the ESRI that the Government's accounts will be in error to the extent of €700 million this year?
Will the Minister comment on the forecast that we will have one of the highest rates of inflation in Europe this year? That is filtering down to ordinary consumers. Will the Minister comment on the fact that the price of petrol has increased by about 15 cent per litre in the last three weeks? That is a huge change in fuel costs.
I am aware from driving around that petrol prices quoted at various stations are hugely divergent. That is true in my county and the Deputy's. One reason for that relates to the fluctuating price of oil on the markets.
Our rate of inflation is in the upper quartile of members of the EU and has been for some time. Ours is not the highest and it has been higher. I stick with our prediction, as does the ESRI, that average inflation in 2002 will be of the order of 4.2%. That is what I said at budget time and the ESRI uses the same figure today.
Deputy McDowell asked a question about the ESRI contention that there would be an undershoot of the order of €700 million. I can only refer to my officials' end quarter Exchequer statement which pointed out that changes in taxation are staggered throughout the year going forward. When that was published they were still of the view that the small surplus of €117 million I predicted at budget time would be met.
Written Answers follow Adjournment Debate.
