Kieran O'Donnell (Limerick East, Fine Gael)
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Question 111: To ask the Minister for Finance the anti-inflation policy and target inflation rates in place for the next 12 months; and if he will make a statement on the matter. [31839/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy will recall that my Department's latest inflation forecasts were published on July 2nd as part of the Technical Update of Current Year Macroeconomic Forecasts. These set out its expectation that CPI inflation would average 4.3 per cent for 2008 as a whole. Since then the ECB announced a quarter percentage point increase in interest rates. Factoring this in would imply a CPI inflation rate of 4.5 per cent for 2008.

In the year to date, CPI inflation has averaged 4.6 per cent. However, like other commentators, my Department expects to see an easing in the average rate of inflation in the latter part of this year and into next. There are a number of reasons why the rate of inflation should decelerate going forward. These include a moderation in commodity prices, the pass-through of the strong euro and the slowdown in the economy. Technical factors such as favourable base effects will also contribute to an easing of inflation.

My Department will publish updated inflation forecasts as part of Budget 2009.

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.

We are also continuing to prioritise investment in physical capital under the National Development Plan. Over the longer term, this 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 externally-driven price increases do not become embedded in our system as that only creates a vicious cycle from which no one wins. In this respect, the willingness of the various parties to compromise and adopt a realistic approach to wage developments in the recent pay talks is commendable.