Willie Penrose (Westmeath, Labour)
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Question 90: To ask the Minister for Finance his views on the recent increase in the consumer price index; if his Department has carried out an assessment of the expected implications for the economy of the increase in inflation; and if he will make a statement on the matter. [24958/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by annual changes in the Consumer Price Index (CPI), was 3.9 per cent in May. A large part of the recent pick-up in the annual inflation rate is due to external factors such as higher oil prices and interest rate increases by the ECB.

On Budget day, my Department forecast that CPI inflation will average 2.7 per cent in 2006. This forecast was based on the usual technical assumption of unchanged interest rates. My Department will publish updated forecasts in the autumn.

When measured against the EU harmonised index of consumer prices (which excludes mortgages) our rate of inflation is 3.0 per cent compared to a euro area average of 2.5 per cent in May. When the impact of oil price increases and mortgages is completely stripped out, the rate of inflation falls to more like 2 per cent. While we cannot determine oil prices or interest rate changes and cannot be held to blame for them, the fact that they are increasing requires us as a nation to become more cost-conscious, more productive and more competitive going forward, all three aims which Government fiscal policy, education policy and science and R&D policy is designed to support.