Dr. Ella Kavanagh:

Regarding building and construction costs, they are an important part of inflation.

If there is an increase in demand for materials and also then for workers employed in that particular sector, that will drive up those particular costs. They are a part of inflation. Another way of looking at it is a more long-term perspective. If there is an increase in capital expenditure on infrastructural developments, transportation or whatever, it can have more benefits longer term. In other words, it improves efficiencies in the economy. Therefore, it is an important supply side dimension to policy. It improves the supply side, the productive potential of the economy.

The latter can help to ameliorate some of the inflationary forces that can be there.

At the same time, there could be a further increase in construction costs because of Government demand for more materials. These capital expenditures can lead to a multiplier effect which, in turn, can lead to an increase in demand that can drive up prices and inflation. There is not only the initial effect of inflation increasing construction costs but there can be a multiplier effect associated with that. It can be quite strong in the domestic economy because if everything is being used domestically that multiplier effect is much stronger in the rest of the economy. If people are spending and buying more that is driving up costs and prices more and that multiplier effect can be much stronger within the domestic economy when all the costs are within the country.