Ruairi Quinn (Dublin South East, Labour)
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Question 55: To ask the Minister for Finance his views on the possible real debt inflation effects that would arise in the event of consumer price deflation or wage deflation; if he proposes to take action to mitigate these effects; and if he will make a statement on the matter. [6350/09]

Ruairi Quinn (Dublin South East, Labour)
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Question 99: To ask the Minister for Finance if he will estimate the average CPI and HICP measures for price volatility for 2009; and if he will make a statement on the matter. [6349/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 55 and 99 together.

My Department's latest inflation forecasts were published on 9 January as part of the Addendum to the Stability Programme Update. These showed that CPI inflation was expected to turn negative in the first quarter of 2009 and average -1.0% for the year as a whole. For HICP inflation, an annual average in the region of 1⁄2% was forecast for 2009.

These forecasts pre-dated the ECB announcement of a half percentage point decrease in interest rates on 15 January. Factoring in this rate cut, along with more recent data, would imply an average CPI inflation rate of around -2.0% in 2009. Taking account of the latest data would imply a broadly flat rate of HICP inflation in 2009.

The current and prospective easing in inflation will have both positive and negative effects. It will lead to an increase in households' purchasing power, thus helping those on tighter budgets, and this is to be welcomed. That said, falling prices also means an increase in the real value of debt.

However, to the extent that the latter situation materialises, a number of factors will help to mitigate the effects. These include the substantial interest rate cuts of recent months and the range of measures that the Government has put in place to support households experiencing difficulties in meeting mortgage payments. For example, the Mortgage Interest Supplement provides assistance where the mortgage relates to the sole place of residence, while the Money Advice and Budgeting Service is a national, free, confidential and independent service for people in debt, or, in danger of falling into debt.

The Deputy will also be aware of the new mandatory Code of Conduct on Mortgage Arrears. This incorporates a requirement for the lender to wait at least six months from the time arrears arise before taking legal action. In terms of the two recapitalised banks, I would point out that these will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing, where the customer maintains contact and cooperates reasonably and honestly with the bank. In addition, the recapitalised banks have assured the Government that in the normal course they will make every effort to avoid repossessions, as evidenced by the low level of repossessions by them to date. So while there are some negative aspects to falling prices, the general easing of price pressures will assist in regaining some of the loss of competitiveness that we have suffered in recent years.