Thursday, 25 October 2018

Ceisteanna (103)

Bernard Durkan


103. Deputy Bernard J. Durkan asked the Minister for Finance if inflationary tendencies in the economy have been detected which may arise from enhanced house prices leading to higher mortgage repayments which might lead to higher wage demands; and if he will make a statement on the matter. [44578/18]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

For the first nine months of the year, inflation as measured by the Harmonised Index of Consumer Prices (HICP) averaged just 0.7 per cent on an annual basis. House price inflation is not included explicitly in the calculation of the general level of inflation. However, accommodation costs are reflected in the HICP through rent costs which increased by 5.8 per cent in the year to September 2018. This reflects house price inflation of 8.6 per cent on an annual basis.

In general, higher house prices will, all things being equal, lead to increased accommodation costs which may lead to higher wage demands. However, such impacts are likely to be marginal in terms of the general labour force. The key issue for housing at present is to increase supply to match demand, and the Government has a comprehensive set of measures in place to achieve this, most notably Rebuilding Ireland.

A more important factor in relation to wage pressure is the rate of unemployment. The continued decline in the unemployment rate is expected to put upward pressure on wages, with wage inflation set to accelerate from 2.4 per cent this year to 3.0 per cent next year, as outlined by my Department’s macroeconomic forecasts published with Budget 2019.

The Government will continue to implement policies that increase the supply of housing and in turn help reduce inflationary tendencies in the housing market.