Bertie Ahern (Dublin Central, Fianna Fail)

On the Deputy's first point, I do remember what the rate of inflation was when I took office. I also remember that unemployment was at 11%, single people paid tax on €72 per week, there was no minimum wage, old people received very low rates of welfare and the preceding Government gave them an increase of £1.50, one of the most miserable increases ever. I remember all of these things.

The annual rate of inflation, as measured by the consumer price index, was 5% in March and I know this represented an increase on February. The increase was higher than expected, as the Tánaiste said, and was well above the forecasts of other analysts. Inflation in the goods sector was 4.2% in the 12 months to March and this is largely being driven by global markets for raw materials, as has been stated by everyone in every sector of the industry. It is essential that these externally driven price increases are not pressed more by internal factors that could adversely impact Irish competitiveness. We must be careful of this. Some commentators have attributed the higher than expected inflation rate to fuel purchases under hedging arrangements, which reduced the positive effects of the strong euro exchange rate. There are many reasons for the increase in inflation; some are accurate and others may be somewhat stretched.

The annual EU measure of inflation, the harmonised index of consumer prices, HICP, gave a rate of 3.7% in March, up from 3.5%. This figure was above the EU average and the gap remained unchanged in March so I do not think we should talk it up more than is necessary. We must work across Departments and agencies to bring inflation into line as quickly as possible and this has already started with the inflation group. We have already been successful twice in this regard during this decade.

The increase in inflation in the past two years was mainly due to external developments, such as increases in interest rates and European prices. We must do everything we can in all sectors to bring it under control and this process has been under way since the autumn through the social partnership process involving employers, trade unions and State agencies. It does not take away from the projections for the Irish economy. Despite the sub-prime difficulties, difficulties in borrowing and those relating to the inter-bank rate for borrowing, the economy is still in a strong position. We must get through this period as the forecasts for next year and the second half of this year are still positive. We must deal with the difficulties that are, mainly, in two or three areas and have been well identified. I assure the Deputy that they will be carefully watched every month.

In the short term, the budget day forecast was for growth this year of 2.8% in gross national product, GNP, and 3% in gross domestic product, GDP. The forecast has not changed in the analysis of the first three months of the year. We are in a more difficult economic environment, something I have made clear since the autumn, and there is no arguing against the fact that a lower level of the building of new houses has changed some of the forecasts made in the budget. To hold revenues as projected in the budget will be more demanding and challenging and there is a more challenging external environment. Practically every country in the OECD, never mind the 27 countries in the European Union, faces these difficulties. The key is to manage our position as best we can and I assure the Deputy and the House that this is what we are doing not only in the Department of Finance, but in all Departments and State agencies.

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