Brian Cowen (Laois-Offaly, Fianna Fail)

My Department assesses data produced by the Central Statistics Office on the contribution from different sectors to price growth. The CSO rebased in December 2001. The figures for the years 2002-06 show that consumer price inflation increased by approximately 12.5% over this period. Of this figure, it is estimated that approximately 10% is due to services sector price inflation, while 2.5% is due to goods inflation. It is important to note, however, that during this time the economy grew by 22% and 260,000 jobs were created.

Where it can, the Government is taking action to contain inflation by implementing responsible fiscal policies. For example, with the exception of an increase in indirect tax on tobacco in the 2007 budget, which was done for health reasons, indirect taxes have not been raised in the past three budgets. We have also reformed sectors such as the communications and insurance sectors and these are now showing low rates of inflation. The Government also removed the groceries order and data recently released by the Central Statistics Office show that this is beginning to have a moderating impact on food prices. I understand that the Minister for the Environment, Heritage and Local Government specifically requested that to support competitiveness in the economy and protect the interests of communities. Local authorities should exercise restraint in setting any increases in commercial rates and local charges in the context of their budgets for 2007.

We must also be aware that a number of important factors which influence inflation are outside Government control. For example, mortgage interest rates are set by the European Central Bank and mortgage interest added in the region of 2% to total CPI. Equally, energy prices in Ireland are set by independent regulators and reflect international market prices and other factors such as investment costs.

Goods are generally traded internationally and, as a result, goods inflation is kept low by international competition. However, services are largely non-tradable and the relatively high rate of services sector inflation is a cause for concern. The Competition Authority is undertaking a number of detailed studies of how competition is operating in specific sectors of the economy and the Government will pay close attention to the results of these studies. Areas such as the restaurant, hotel and licensed premises sectors are of particular concern as it is estimated that they contributed approximately 3% to overall inflation in the past five years. This highlights the need for pay and profit restraint in these sectors to reduce price pressures and we must ensure that the wage increases granted under the social partnership agreement, Towards 2016, are reflected in productivity gains.

In addition to the steps already outlined, the Government is taking a broad approach to dealing with inflation. We are investing heavily in public infrastructure, which will enhance our ability to produce goods and services more efficiently and, therefore, help keep inflation down on a continuing basis. The economic conditions fostered by the Government will support the economy's competitiveness and provide the basis for our continued future economic success.

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