Brian Lenihan Jnr (Dublin West, Fianna Fail)

Achieving a moderate rate of inflation is a key economic policy priority given its importance in helping to restore national competitiveness. Due to the relatively high rate of inflation that we have experienced over the past number of years, the price level for consumer goods and services in Ireland is some 20% above the euro area average. In light of this, the Government is committed to monitoring developments in prices on an ongoing basis.

As measured by the harmonised index of consumer prices, annual inflation in Ireland was 3.3% in April 2008. Using the domestic measure, the consumer price index, annual inflation was 4.3% in April 2008. This represents an improvement on the consumer price index inflation rate of 5% recorded a month earlier. As in many other countries, the global rise in food and oil prices is continuing to impact on headline inflation in Ireland. In the year to April 2008, food costs rose here by some 8.4%, contributing 0.9% to the annual increase in prices, while the cost of energy rose by 7.3% and contributed 0.6%.

As regards exchange rate developments, it is well known that sterling has depreciated sharply against the euro in recent times, falling by around 15% in the year to April 2008. Given that approximately one third of imports to Ireland are from the UK, I would have expected to see this fall in sterling exerting some downward pressure on inflation. I am disappointed this does not seem to have happened to date. This issue is also of concern to the Government and my colleague, the Tánaiste and Minister for Enterprise, Trade and Employment, has been actively engaging with those concerned to see what steps can be taken to resolve the matter. As the depreciation in sterling is passed through, I anticipate a moderation in Ireland's inflation rate later this year.

In terms of the Government's response to recent price developments, I point out that as a small open economy, we are largely a price taker, which means we have few direct measures at our disposal to reduce the inflationary impact of the global rise in commodity prices.

Notwithstanding this, the Government is committed to doing what it can. In the short to medium term, this includes implementing responsible fiscal policies and promoting competition and increased price transparency through the work of the Competition Authority and the National Consumer Agency.

Additional information not given on the floor of the House.

Over the longer term, the considerable investment in the agricultural and food industries that the Government is currently undertaking as part of the national development plan will help improve the productivity and competitiveness of these sectors, with subsequent gains for the Irish consumer.

Finally, from a competitiveness perspective, I stress the importance of ensuring that the externally driven price increases we are currently experiencing are not exacerbated by internally generated second round effects. Securing a sensible and sustainable outcome to the current round of pay talks will have an important role to play in this respect.

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