Liz McManus (Wicklow, Labour)
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Question 140: 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 2008; the way this compares with the forecast he gave in his Budget 2008 speech in December 2007; his views on the fact that the level of inflation continues to run at nearly 5%; the measures he will take to deal with this issue; and if he will make a statement on the matter. [2316/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by the CPI, averaged 4.9 per cent in 2007. On Budget day, 5th December 2007, my Department forecast that Consumer Price Index (CPI) inflation would average 3.0 per cent this year. This forecast was based on the normal technical assumption of unchanged interest rates, is predicated on the rate of inflation moderating as this year progresses, and remains my Department's forecast for 2008.

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. As such, a better measure of inflation than the Consumer Price Index is the Harmonised Index of Consumer Prices (HICP) which excludes, among other things, mortgage interest and is a more realistic measure of inflation. The average increase in the HICP in 2007 was 2.8 per cent, and the forecast increase for 2008 is 2.4 per cent.

A moderate rate of inflation remains a key priority of economic policy because of its importance for competitiveness. Pursuing responsible fiscal and pay policies is important in that context.