Brian Cowen (Laois-Offaly, Fianna Fail)

In looking at the causes of Irish inflation over the past year, it is important to distinguish between external factors, which are beyond domestic policy control, and internal factors. Externally, the main cause is higher mortgage interest payments due to ECB interest rate increases. Excluding mortgage interest repayments, as I have said, the rate of increase in the CPI inflation rate last year would have been2.6%. Mortgage interest is currently adding approximately 2.5% to inflation.

There is no room for complacency in terms of internal factors. As the Deputy said in respect of services inflation, this is a cause for concern. We must continue to increase competition in that market. This Government has committed itself to reviewing all of the regulatory environment in which we do business in this country to try to ensure that we provide the best prospect for a competitive situation in services.

The goods inflation issue is not causing us much concern. For example, when one looks at the impact of the abolition of the groceries order, one can see that those items which were subject to the groceries order increased by only 0.1% last year, while groceries items which were never covered by the order increased by 2.4% in 2006. That, in addition to expanding the productive capacity of the country to improve our transport and other areas, are the medium and long-term issues under the national development plan, along with our investment in research and development and productivity increases.

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