Richard Bruton (Dublin North Central, Fine Gael)
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Question 64: To ask the Minister for Finance his views on recent trends in consumer prices; and if he will make a statement on the matter. [19698/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by annual changes in the consumer price index, CPI, was 3.8% in April. A large part of the recent pick-up in the annual inflation rate is owing to external factors such as higher oil prices and interest rate increases by the European Central Bank.

On budget day, my Department forecast that CPI inflation would average 2.7% in 2006. That forecast was based on the usual technical assumption of unchanged interest rates. My Department will publish updated forecasts in the autumn.

On an EU basis, Ireland's harmonised index of consumer prices, HICP, was 2.7% in April, compared with 2.4% in the euro area. Ensuring that our inflation rate moves back towards the euro area rate is important to our remaining competitive.

Maintaining a moderate rate of inflation remains a key priority of economic policy because of its importance to competitiveness. The Government is doing its bit to contain inflation by implementing responsible fiscal policies. In addition, we have not increased excise duties for the last two years, and we are promoting greater price competition by removing the 1987 groceries order. We are also seeking a reasonable wage deal to maintain and improve our international competitiveness. We are investing in public infrastructure that will enhance our ability to produce more goods and services and keep inflation down in the process.

Richard Bruton (Dublin North Central, Fine Gael)
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Does the Minister agree the trend is particularly worrying when one compares Ireland with the rest of Europe? In December our inflation rate was below the European average, but we have swung the other way, with a rate 0.7% above it on the latest CSO figures. While inflation affects all European countries, it is far worse here than anywhere else. Against that background, is the Minister for Finance concerned at comments made yesterday by the president of the European Central Bank who highlighted internal problems, which are controlled by government, as one of the core issues of inflation in Europe. Is the Minister aware that if one looks at government sectors, which the president of the European Central Bank highlighted, including transport, telecommunications, education, housing, utilities and health, Ireland is three points above European inflation in these areas? In the areas in which government has a real say in the trend of inflation, either through regulation or direct pricing, Ireland is seriously out of line and is becoming more so? Does the Minister believe the Government needs to look at pricing and regulation to ensure we have a more competitive environment for consumers?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Looking at the trend over a period of time, since we joined the euro area some years ago, the figures at the back end of last year showed, for the first time, a coming together of the European and the Irish average inflation. The Irish average inflation before that was much higher. Part of that is a function of domestic demand which is greater here than in European countries. One of the problems of the failure to reignite growth in continental European economies quite apart from the structural issues of their economies regarding the flexibility of labour markets etc. is the inability to create domestic demand. Domestic demand, while it has increased the composition of our economic growth in recent years, also brings with it the ability of people to spend their money. We have higher income earners than in many parts of the euro area.

The Deputy referred to gas and electricity prices. These are regulated industries and prices in these sectors are determined by regulators. Increases in recent years partly reflect the global increase in oil prices, over which we do not have control. If one looks at health and education, it should be noted that these sectors have relatively small weights in the basket of consumer goods and services and hence their impact on overall inflation is relatively low.

Richard Bruton (Dublin North Central, Fine Gael)
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If one looks at transport, telecommunications and even oil, our inflation rates are growing much more rapidly than those in Europe. There is no reason our transport and telecommunications costs should rise more rapidly than those in Europe. In the past 12 months, there has been a 15 cent increase in the price of a litre of petrol whereas there has been only a 9 cent increase elsewhere in Europe. Something is happening in Ireland which is not happening elsewhere in Europe. Let us not forget we got the tag of "rip off" and the Government carries some of the blame for that because it has allowed this inflationary spiral and fuelled it with Government take in those sectors. That is where the Minister stands accused. He needs to deal with this issue before it again becomes a live one and Ireland becomes the most expensive place in Europe.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Insurance, including motor insurance, premiums are down to 1999 levels as a result of Government initiatives——

Paul McGrath (Westmeath, Fine Gael)
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Donie did all that.

Brian Cowen (Laois-Offaly, Fianna Fail)
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——which were, in some cases, opposed by Members of the Opposition in trying to represent vested interests. There is no room for complacency in terms of our competitiveness, of which we must be mindful. Making the comparison with European economies, the difference is not 0.8% but 0.3% on the harmonised index of consumer prices inflation versus the euro area since 1999.

Looking at the relative inflation performances of Ireland and the euro area since the beginning of monetary union, the inflation rate in Ireland has been reduced from the highest in the euro area between 1999 and 2003 to being broadly in line with the average in the past two years. Where an economy is growing strongly and is at or about full employment, as is the case in Ireland, this can lead to excess domestic demand as people spend the additional money in their pockets putting upward pressure on prices and inflation. This particularly arises in the services area, which are domestically produced rather than imported. It is a side effect, albeit an undesirable one, of an economy which is doing well.

In terms of EU comparisons, the harmonised index of consumer prices is used by the EU member states and the European Central Bank. It is a statistical measure using a basket of goods which has been agreed between all member states so that we have a common inflation index to compare member states and the euro area as a whole. The basket of goods is revised periodically but currently the main item where it differs from the consumer price index, which is our national inflation index, is the exclusion of mortgage interest and some types of insurance.

I acknowledge there has been an increase in the April figure compared with the previous one. Hopefully, we will not see further interest rate increases, although we cannot anticipate what will happen with the European Central Bank. The first of the interest rate rises last autumn comes out of the base in the autumn. Depending on oil prices, were everything to stay static, one would hope there would be some moderating influences in terms of year on year inflation by the end of the year.