Michael D'Arcy (Wexford, Fine Gael)
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Question 89: To ask the Minister for Finance if he has analysed the source of Ireland's faster rate of inflation in recent years and its implications for public policy. [21884/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I would like to reassure the Deputy that my Department monitors inflation developments on an ongoing basis.

As measured by the Harmonised Index of Consumer Prices (HICP), annual inflation in Ireland was 3.3% in April 2008. Using the domestic measure — the Consumer Price Index (CPI) — the annual inflation rate was 4.3%.

The pick-up in inflation in recent years has been driven primarily by external developments, namely the global rise in oil and food prices and increases in interest rates. In the year to April 2008, food costs rose by some 8.4%, contributing 0.9 percentage points to the annual increase in prices while the cost of energy rose by 7.3%, contributing 0.6 percentage points. If the effect of last year's interest rate increases were removed, CPI inflation in the 12 months to April 2008 would have been 3.5%.

The Deputy will recall that my predecessor increased the ceiling on mortgage interest relief for first-time buyers in Budget 2008 to address the CPI inflation impact of last year's interest rate increases.

In addition, I would expect that there should be a moderation in Ireland's inflation rate later this year as the recent depreciation in Sterling is passed through.

Achieving a moderate rate of inflation is a key economic policy priority given its importance in helping to restore national competitiveness. In recognition of this, the Government is taking positive action to control inflation. Over the short to medium-term this includes implementing responsible fiscal policies and promoting competition and increased price transparency through the work of the Competition Authority and the National Consumer Agency.

Over the longer term, the considerable investment in public infrastructure that the Government is undertaking as part of the National Development Plan will enhance our ability to produce more goods and services, which by improving the economy's efficiency should help to keep inflation in check.

Finally, from a competitiveness perspective, I would stress the importance of ensuring that the externally-driven price increases that we are currently experiencing are not exacerbated by internally–generated second-round effects. Securing a sensible and sustainable outcome to the current round of pay talks will have an important role to play in this respect.