Richard Bruton
Ceist:46 Mr. R. Bruton asked the Minister for Finance if he continues to project a fall in consumer price inflation in 2003. [25933/02]
Priority Questions. - Consumer Price Index.
The latest inflation projection published by my Department was included with the budget documentation which indicated that inflation, as measured by annual changes in the consumer price index, will remain broadly unchanged next year at 4.8%. The increase in the CPI will be higher in the next few months but will ease as the year progresses. Accordingly my Department projects a further easing beyond 2003, to around 2.5% by 2005. If the impact of the increase in tobacco which I announced on budget day is excluded from the calculation, CPI inflation is expected to fall to about 4.2% in 2003.
At budget time, it was also estimated that, as measured by the EU harmonised index of consumer prices, inflation would fall from an estimated 4.7% in 2002 to 4.2% in 2003. My Department closely monitors developments in relation to inflation. One of the main factors behind the current high inflation rate in Ireland is the high level of service sector inflation. This in turn reflects the high levels of wage increases in recent years as well as inadequate levels of competition in some sectors of the economy. It is important that wage pressures, and the evolution of costs more generally, are not allowed to lead to a deterioration in competitiveness which would result in lower growth and higher unemployment. This is why wage moderation and cost moderation more generally are so important.
Does the Minister agree that one of the problems we have had with inflation in the last 12 months is that the Government, far from playing a role preventing people being ripped-off during the course of the euro changeover, has driven inflation with increases in most charges for Government services running to six, seven, eight or nine times inflation? Does he agree that the increases in ESB charges of 13%, in VHI of 18%, in the drugs refund scheme of 26%, in hospital charges of 27% and in college fees of 69% are all Government generated increases in inflation in addition to those which he announced in the budget last week? Does he accept that the public is being asked to pay for the reckless spending that he and his colleagues engaged in over the last two years and that we are driving inflation and the cost competitiveness of the economy up a blind alley with this policy?
Now that the Deputy has mentioned public expenditure increases, I expect that as a fair-minded Meath man he will stand up on 2 January 2003 when public expenditure comes in at around 14% to recognise the achievement.
The Minister will crow enough about that himself if it happens.
Some of the items mentioned as driving up inflation are within the Government's control while some are not. The Deputy mentioned the ESB, which is a semi-State body while the VHI's board makes increases once a year. Other items drove up prices but the overall effect on the consumer price index is nothing like what the Deputy has alluded to. While people have anecdotal evidence of the increases in prices resulting from the euro changeover, a detailed survey by FÁS reported that the aggregate level of CPI inflation during the euro changeover period did not appear unusual in reference to historical standards.
The budget of last Wednesday will add 0.85% to inflation in 2003. Before the budget, I heard great play being made by Opposition Deputies and others outside the House to increase the price of cigarettes by colossal amounts. Of the 0.85% increases in inflation, 0.43% relates to the increase of 50 cent on a packet of cigarettes while 0.18% relates to the increase in the price of drink, although many people were advocating greater increases on drink. I thought it deserved attention but I have heard no one in the last week speak about the fact that we would not look at the effect that either drink or cigarettes would have on the CPI. We expect inflation next year to average 4.8% which means for the early part of the year inflation will go upwards of 5%, possibly as high as 6%, but we expect the average to come down to 4.8%. The reason inflation has been so high in the past year to 18 months has been service sector inflation in the main due to higher wage costs.
Does the Minister accept he has no credibility is asking for a wage freeze at a time he himself says that inflation—
I never asked for a wage freeze.
He certainly left the impression he wanted a period where people would not get wage increases. Does the Minister agree he has no credibility in asking for an extended period of no wage increases when he is generating inflation, as he admits himself, of 5.8%? Will he also agree that he is being extremely selective in the evidence he quotes? The ESB made an increase because it had to give extra dividends to the Government. The VHI increased its prices because Ministers made a decision it would increase hospital and drug charges to members. College fees are under pressure as a direct result of the decision by the Government to increase them by 69%. We are seeing further threats of increases in this area. Most of the so-called service inflation is coming from Government controlled services not from private sector services. The Minister needs to look to himself and his colleagues to control price and cost increases rather than lecture others.
Of all the Deputies in the House, I know Deputy Richard Bruton does not believe half of what he said in the previous question because he understands the make-up of inflation and the figures. When he says the Government is responsible for the increase, he knows it is patently untrue. As the Deputy knows well from his detailed study of the CPI, the main cause of inflation is service sector inflation which is roughly 60% of the make up of the index – the remaining 40% relates to the traded sector. It is totally incorrect to say the reason the ESB increased its prices related to the demand by the Government for additional dividends. The Government gets a small dividend from the ESB – it is less than I would like but it has nothing to do with the increase in prices.
I agree with the Deputy if he is making a general case that it is in everyone's interest to drive inflation downwards because if it is around the EU average of 2% or 2.5%, increases in social welfare and public spending will have a greater effect. We must not get into a wage-price spiral because that is what got us into difficulties in the 1970s.
The Minister's budget will cost ordinary families €1,400—
It is just as well I did not list some of the price rises the Fine Gael Party wanted.
The Minister did his fair share.