Thursday, 22 February 2018

Ceisteanna (51)

Michael McGrath

Ceist:

51. Deputy Michael McGrath asked the Minister for Finance his plans to address inflation in view of the investment announced in the national development plan 2018 to 2027; and if he will make a statement on the matter. [9086/18]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

Inflation in Ireland and other developed economies has been subdued for a prolonged period. While inflation picked up elsewhere last year, inflation in Ireland remained close to zero. Overall HICP inflation averaged just 0.3 per cent last year, the fifth consecutive year of inflation below 1 per cent. By contrast, inflation in the euro area as a whole, on a HICP basis, averaged 1.5 per cent last year.

Inflation is not, therefore, a short-term risk at present. However, over the medium term as temporary exchange rate shocks, which have been a significant contributing factor to low inflation in Ireland over the past couple of years, subside, and the economy approaches full employment, price pressures may emerge. The increased investment announced in the national development plan 2018 – 2027 (NDP 2018 - 2027) could potentially contribute to this. However, the NDP 2018 – 2027 recognises the importance of ensuring the affordability and sustainability of capital spending plans to minimise the risk of overheating, and as a consequence, the risk of contributing to price pressures.

A further mitigating factor is that public investment has an important role to play in boosting the capacity of the economy, which would tend to reduce price pressures. In addition, the NDP 2018 – 2027 is focused on targeting bottle-necks of particular concern such as in housing. Addressing the housing shortage would alleviate price pressures in the rental market.

I have emphasised, on a number of occasions the importance of ensuring that Budgetary policy does not contribute to overheating pressures in the economy and the pro-cyclical polices of the past are not repeated and this is reflected in the NDP 2018 – 2027. My Department will continue to closely monitor price developments as we seek to ensure that the competitiveness gains over the past few years do not unwind. To this end, the Government will continue to manage the public finances in a prudent manner and maintain competiveness-orientated policies.