Brendan Howlin (Wexford, Labour)
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Question 64: To ask the Tánaiste and Minister for Finance his views on the fact that the consumer price index shows that inflation is running at 5% with inflation in fuel and staple food prices running significantly in excess of this level; his further views on the effect this is having on persons on low, fixed incomes and on social welfare; if he will propose measures to address the persistently high inflation rate and measures that will particularly aim at alleviating the effects of inflation for those on low, fixed incomes and on social welfare; and if he will make a statement on the matter. [15622/08]

Eamon Gilmore (Dún Laoghaire, Labour)
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Question 78: To ask the Tánaiste and Minister for Finance his views on the fact that inflation is running at 5% per annum; if he proposes measures to bring down the inflation rate; if he will take steps to protect the real incomes of workers during the upcoming national pay talks; and if he will make a statement on the matter. [15603/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 64 and 78 together.

Inflation, as measured by the Consumer Price Index (CPI), increased by an average 4.9 per cent in 2007, and has risen by 5.0 per cent in the twelve months to March 2008. Of the 4.9 per cent figure in 2007, 2.2 per cent was contributed by increased mortgage interest repayments. 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. 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. The HICP is also the measure used by the European Union and European Central Bank to compare inflation across member states. The average increase in the HICP in 2007 was 2.8 per cent, and 3.7 per cent in the twelve months to March 2008, marginally below the average for the EU 27 as a whole.

The main contributions to the annual increase of 5.0 per cent in CPI over the 12 months to March 2008, in order of importance were: housing, water, electricity, gas and other fuels contributing just over 2.0 per cent; food and non-alcoholic beverages contributing almost 1.1 per cent; and transport contributing 0.75 per cent. Therefore out of the twelve categories comprising the basket of goods that make up the CPI, three contributed almost 80 per cent of the total inflation in the twelve months to March 2008. The main driving forces behind these figures are increased mortgage repayments and rising food and fuel costs. Mortgage rates are largely set by the ECB and the price levels of food and fuel are set on global markets, and are therefore largely outside domestic control.

That is not to say that I have not sought to support measures that seek to curb inflationary tendencies in our domestic economy, and to pursue policies intended to mitigate the impact of inflation on the less well off. Over the past ten years or so I and my predecessor have ensured that those depending on social welfare have achieved substantial real improvements in their living standards. Furthermore, in my Budget 2008 statement I made clear that the first priority of this Government was to ensure that the poor and vulnerable in society are protected. This priority still stands. In addition, pay increases under partnership agreements combined with tax reductions have resulted in the disposable income of the average Irish worker being the second highest in the EU.

The best way to protect the real incomes of ordinary workers is to pursue policies that sustain competitiveness and employment. We must always seek to ensure that our domestic cost base does not undermine competitiveness. Seeking to achieve low inflation, pursuing an appropriate incomes policy and keeping public spending growth at sustainable levels in the medium term are essential. Doing these will allow us to keep the burden of taxation low, thus helping to maintain competitiveness and to maximise our economic potential. If we can ensure that pay increases reflect productivity growth, rather than unwisely trying to compensate ourselves for externally-generated inflation, our economy can grow at a pace which will continue to deliver real increases in living standards for those on social welfare and for all workers.