Mr. Sebastian Barnes:

I agree with the Deputy that, given these are the highest inflation rates we have had in a generation, we have to go back in time or to countries that have experienced high inflation more recently to try to draw lessons. Many things have changed in the economy over time, which is one of the things that makes it uncertain. We are in some senses in uncharted waters. A clear lesson is that trying to overdo the response and insulate ourselves from these shocks will lead to higher inflation and second-round effects. How far those go depends on many things.

One thing that has changed significantly is the way monetary policy works. We now have an independent central bank in the euro area, which one would expect to take this very seriously. That is one of the reasons interest rates have increased: people expect the ECB to respond and it has indicated it will start to raise interest rates in the next couple of months. That is different from the picture we had six months ago. That is one of the forces one would expect to keep inflation down. The higher it sees inflation going, the stronger it is likely to respond. That is one reason it would be counterproductive to have excessive across-the-board wage increases.

There is a delicate balance for the Government to strike. There is a legitimate case for protecting the economy in the short run and for helping lower income and more vulnerable households, but a balance has to be struck with not putting too much money into the economy or creating unsustainable wage and price expectations. It is a difficult balance and there is no magic formula to do it. In the early days of social partnership, Ireland was able to use different instruments together and co-ordinate different parts of the economy to achieve an outcome. It is a different situation today but that process worked quite well. Like many countries, we have not needed those processes to the same extent for a long time. The question is, if we come back to them, how we will do it. The Government has said it is having discussions with different bodies and that could be a good way of managing this.