Brian Cowen (Laois-Offaly, Fianna Fail)

I am aware of the report by the Central Bank and welcome its broadly positive assessment of the Irish economy. The best measure of underlying inflation is the EU comparable measure of inflation, known as the harmonised index of consumer prices. Average HICP inflation in Ireland was 2.7% in 2006 and my Department is forecasting HICP inflation averaging 2.6% in 2007.

The annual rate of inflation as measured by the consumer price index was 4.0% in 2006 and is forecast to be 4.1% in 2007. The CPI differs from the HICP in terms of coverage. The main difference between the CPI and the HICP is the inclusion of mortgage interest repayments in the CPI. Recent CPI inflation has been impacted by six interest rate increases since December 2005, each of 0.25%. I agree with the point expressed by the Central Bank in its bulletin that the outlook for CPI inflation will depend in large part on the future path of interest rates.

Where it can, the Government is taking action to contain inflation by implementing responsible fiscal policies. With the exception of an increase in indirect tax on tobacco in the last budget, which was done for health reasons, indirect taxes have not been raised in the past three budgets. The Government also removed the groceries order and this is beginning to have an impact on food prices. The Minister for the Environment, Heritage and Local Government specifically requested that in order to support competitiveness in the economy and to protect the interests of communities, local authorities should exercise restraint in setting any increases in commercial rates and local charges in their budgets for 2007.

We are also investing heavily in public infrastructure which will enhance our ability to produce more goods and services more efficiently, and that will help keep inflation down. To the extent that the prices of Government services reflect increased wage cost factors, we need to make the provision of the services more efficient. This is what we are seeking to do in modernising the public service.

The stable macro-economic environment created by the Government through the pursuit of sound public finances will support the economy's competitiveness, and will in turn provide the basis for achieving further economic and social policy objectives in the long term.

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