Bernard Durkan (Kildare North, Fine Gael)
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Question 200: To ask the Minister for Finance the degree or extent to which it has been possible to identify any inflationary factors in the economy in each of the past three years to date in 2011; the issues now emerging as acquiring attention in this regard; the means by which it is likely to become possible to address these issues; and if he will make a statement on the matter. [18982/11]

Michael Noonan (Limerick City, Fine Gael)
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The Deputy will be aware that through 2009 and 2010, there were few inflationary pressures. Indeed, price levels fell, with the CPI declining by 4.5% in 2009 and 1% in 2010, and HICP falling by 1.7% and 1.6% respectively. In the latter months of 2010 and to date in 2011, the drivers of inflation have been insurance premium hikes and increases in the price of commodities on the back of rising global demand and supply side issues, namely the political instability in the Middle East and North Africa. The CPI has also been affected by increases in mortgage rates. In May 2011, the annual rate of increase in the CPI was 2.7% and 1.2% in the HICP.

Looking further out the horizon, the main inflationary risks are likely to come from the external side in the form of further commodity price increases, ECB policy rate increases and domestically from administered prices. In terms of limiting the impact of inflationary pressures, the Deputy will be aware of the Government's recent initiative to reduce the rate of VAT for a range of services connected to the hospitality and tourism sectors. The overall picture remains one where muted domestic demand and considerable spare capacity in the economy are expected to keep underlying Irish inflation in check for some time to come. Therefore, modest price rises will assist in restoring our relative competitive position globally.