Written answers

Tuesday, 20 March 2007

Department of Finance

Economic Competitiveness

11:00 pm

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Question 118: To ask the Minister for Finance his views on the implications for the Irish economy of the recent quarter point increase in interest rates announced by the European Central Bank; and if he will make a statement on the matter. [10217/07]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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On Budget Day, my Department projected economic growth of 5.3% in both GDP and GNP terms for this year. Interest rates remain relatively low in historical terms, and the recent increase has not altered the economic outlook.

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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Question 119: To ask the Minister for Finance his views on the economic implications of rising inflation, in view of the fact that consumer price index inflation measured 5.2% in January 2007 up from 4.9% in December 2006. [10181/07]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by the CPI fell to 4.8 per cent in February from 5.2 per cent in January 2007. On a HICP basis inflation fell to 2.6 per cent in February from 2.9 per cent in January. The rate of CPI inflation has increased in the past year; this is mainly due to ECB interest rate increases which are outside of Government control. If mortgage interest was removed, CPI inflation would have measured 2.5 per cent in February.

An increase in the rate of inflation is a cause for concern. If our inflation rate increases by more than that of our competitors it reduces our competitiveness. It highlights the need for more competition in the economy as well as pay and profit restraint in all sectors in order to keep our cost base down. It also emphasises that in the long run, in order to remain competitive, wages in Ireland will have to rise in line with productivity. We must ensure that the wage increases granted under the Social Partnership agreement, Towards 2016, are reflected in productivity gains.

Maintaining a moderate rate of inflation remains a key priority of economic policy because of its importance in restoring competitiveness. The Government is focusing on areas it can control and taking positive actions to contain inflation by implementing responsible fiscal policies. For example, we have not increased excise duties for the last three years, apart from tobacco excise, which was done for sound health policy reasons. We are promoting greater price competition through various measures. We are also investing in public infrastructure, as evidenced by the recently announced National Development Plan, which will enhance our ability to produce goods and services more efficiently and therefore keep inflation down.

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