Joan Burton (Dublin West, Labour)
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Question 76: To ask the Tánaiste and Minister for Finance his Department's forecast for the level of inflation for 2007; the way this compares to the forecast he gave in his budget speech; his views on the level of inflation continuing to run at 5%; the measures he will take to deal with this issue; and if he will make a statement on the matter. [17474/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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On budget day, 6 December 2006, the Department of Finance forecast that consumer price index inflation would be 4.1% this year. That 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. As usual, the Department will publish updated inflation forecasts in the pre-budget outlook, which is due in the autumn. There have been three interest rate increases of 0.25% since budget day, the latest of which was earlier this month. CPI inflation has averaged 5%, year-on-year, in the first five months of this year, during which two of the three increases took place. As interest rates are a matter for the governing council of the European Central Bank, they are outside the control of the Government.

Mortgage interest accounts for approximately half of Ireland's rate of inflation. If the effect of mortgage interest is excluded, the year-on-year CPI average is 2.6% so far this year. The CPI excluding tobacco has averaged 0.2% lower than the full CPI so far this year. If one maintains the normal assumption that there will be no further interest rate increases, the rate of inflation is expected to moderate as the year continues. The EU comparable measure of inflation — the harmonised index of consumer prices — is the best measure of underlying inflation. It is used by the ECB because it removes the effect of interest rate increases which are made to reduce inflationary pressures. Therefore, it is important that we do not seek to compensate ourselves for such rises in interest rates, as that would lead to a wage inflation spiral and would reduce our competitiveness and, ultimately, our real standard of living.

On foot of a statement made by the Taoiseach on 7 June last, it is planned that the Taoiseach, the Minister for Enterprise, Trade and Employment and I will meet representatives of IBEC and ICTU this week to discuss how we can tackle inflationary pressures together in line with our shared commitments. Where possible, we will take action to contain inflation by implementing responsible fiscal policies. Indirect taxes, with the exception of tobacco excise which I increased for sound health reasons, were not raised in the last three budgets I brought before the House. The decision of the last Government to abolish the groceries order is helping to reduce food price inflation. The stable macroeconomic environment created by the last two Governments through the pursuit of sound public finances, which this Government fully intends to continue, will help the economy to remain competitive and will provide the basis for achieving further economic and social policy objectives in the long term.

Joan Burton (Dublin West, Labour)
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What does the Minister have to say to families and people at work who are receiving very little in the way of wage increases? Their wage increases are, to use the Minister's term, heavily moderated through the social partnership process, but they are living in an economy with an inflation rate of 5%. For most workers and their families, the cost of living in Ireland, compared to most European countries, is astronomically high. I accept what the Minister is saying, namely, that much of the rise in inflation is attributable to interest rate increases. Nonetheless, many Irish people who go on holidays to other EU countries this summer — to get away from the rain — will marvel at the cost of a meal out or a basket of shopping in places like Spain or Greece and throughout the EU. Even countries like Sweden which were once regarded as extraordinarily expensive are now good value when compared to the Republic of Ireland.

What will the Government do under the programme for Government to bring down the rate of inflation? Has the Minister any concrete proposals to tackle the rising cost of services? Most of those price rises are driven by Government policy and the fact that in the housing market it is extremely difficult for young families to purchase an affordable home. Leave aside the millionaires — we are simply talking about ordinary families who are trying to put a roof over their heads and service the cost of a mortgage in an economy which is now at the top of the inflation league. What has the Minister to say about this and what is he going to do?

Brian Cowen (Laois-Offaly, Fianna Fail)
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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.

Joan Burton (Dublin West, Labour)
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Can I ask a brief supplementary question?

Seán Ardagh (Dublin South Central, Fianna Fail)
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We are already over time for this question.

Joan Burton (Dublin West, Labour)
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The Minister said that he, the Taoiseach and the Minister for Enterprise, Trade and Employment will meet with, I understand, IBEC, the trade unions and the rest of the social partners to discuss inflation. Is this a partnership Government? Are any of Fianna Fáil's partners in Government — the Progressive Democrats or the Green Party — invited along to meet the social partners, including the trade unions and IBEC, or is this a Fianna Fáil solo run on inflation?

Seán Ardagh (Dublin South Central, Fianna Fail)
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That question must be asked at another time.

Joan Burton (Dublin West, Labour)
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Can the Minister tell me whether the partners in the Government are excluded? He only mentioned Fianna Fáil Ministers who would be attending.

Brian Cowen (Laois-Offaly, Fianna Fail)
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They are the Ministers with responsibility in these areas.

Joan Burton (Dublin West, Labour)
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So none of the partners will be attending. Are they hands-off on inflation?

Seán Ardagh (Dublin South Central, Fianna Fail)
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We will proceed to Question No. 77.