Brian Cowen (Laois-Offaly, Fianna Fail)

On 6 December 2006, when I presented budget 2007, inflation, as measured by the consumer price index, was forecast to average 4.1% this year. This forecast was based on the normal technical assumption of unchanged interest rates. The budget day forecast for the harmonised index of consumer prices inflation — the EU inflation measure — was 2.6% this year.

The most recent inflation figures released by the Cental Statistics Office are those for October 2007. These show consumer price index inflation running at an annual rate of 4.8% and harmonised index of consumer prices inflation running at 3%. My Department published updated inflation forecasts in the pre-budget outlook in October. At that stage inflation as measured by the consumer price index for the year as a whole was forecast at 4.9% and on the same basis the harmonised index of consumer prices inflation was forecast at 2.8%.

Since budget day there have been three quarter-point interest rate increases. Mortgage interest currently accounts for a significant proportion of the current rate of consumer price index inflation so that if mortgage interest is excluded, the year-on-year consumer price index average in the 12 months to October 2007 would be 2.8%. On the normal assumption of no further interest rate increases, the rate of inflation is expected to moderate next year and this is reflected in the pre-budget outlook forecast for consumer price index inflation, which is forecast to average 2.2% over the period 2008 to 2010.

Based on census 2006 figures, it is estimated that only approximately 40% of households hold mortgages. That 40% can avail of mortgage interest relief, which currently applies at 20% and to a ceiling of €8,000 single or €16,000 married for first-time buyers for the initial seven years of their mortgage, and €3,000 and €6,000, respectively, for all others. The current level of mortgage interest relief for married first-time buyers is sufficient to cover the interest arising on a mortgage of up to approximately €321,500 over 33 years at an interest rate of 5.0%, which is well above the average mortgage.

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