Michael D Higgins (Galway West, Labour)
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Question 129: To ask the Tánaiste and Minister for Finance his Department's forecast for the expected increase in the consumer price index for the full year of 2007; the way this compares with the forecast he gave in his budget 2007 speech; his views on whether the level of inflation continues to run at 5%; the measures he will take to deal with this issue; and if he will make a statement on the matter. [23675/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Department of Finance's most recent inflation forecast remains that which was published with Budget 2007 on the 6th December 2006. At that time, my Department forecast that CPI inflation would average 4.1 per cent for this year. This forecast was based, as it always is, on the assumption of no further interest rate increases over the forecast period. However, the ECB has increased interest rates on three occasions by a total of 0.75 per cent since Budget Day. The cumulative impact of these interest rate increases has been to add about 1 per cent to the CPI since Budget Day. The latest figures show that the Consumer Price Index (CPI) increased by 4.6 per cent in the year to September.

A better measure of inflation is the Harmonised Index of Consumer Prices (HICP) which excludes, amongst other things, mortgage interest. Including the impact of mortgage rate increases in the CPI not only masks the underlying inflation rate, but also highlights the short term impact of interest rate increases which are designed to bring down inflation. The increase in the HICP to September was 2.9 per cent.

A moderate rate of inflation remains a key priority of economic policy because of its importance for competitiveness. The Government is focusing on areas it can control, in particular by implementing responsible fiscal policies. My Department will publish its Pre-Budget Outlook later this week, which will include a revised inflation forecast for the period 2007-2010.