Bernard Durkan (Kildare North, Fine Gael)
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56. To ask the Minister for Finance the extent to which the risk of inflation continues to be monitored; the source of any such inflation; if house price inflation has featured; and if he will make a statement on the matter. [46521/14]

Michael Noonan (Limerick City, Fine Gael)
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My Department monitors inflation developments in Ireland and elsewhere on a continuous basis and produces official forecasts twice a year during the two macroeconomic forecasting exercises: the Stability Programme Update in April and the annual budgetary process in October, which are independently endorsed by the Irish Fiscal Advisory Council. 

As measured by the Harmonised Index of Consumer Prices (HICP), inflation grew by 0.4 per cent in October year-on-year . The main driver of headline inflation is the fall in the price of goods, notably commodity and non-energy industrial goods prices, while service price inflation remains relatively moderate. Core HICP inflation, which excludes energy prices and unprocessed food, was up 0.8 per cent over the year to October 2014. The modest price pressures in the economy continue to be driven by a small number of sectors (e.g. Alcohol Beverages and Tobacco; Miscellaneous Goods and Services; Restaurants and Hotels and Education).

House prices are monitored as part of the Macroeconomic Imbalances Procedure (MIP) as part of the European Semester. As the recently-published Alert Mechanism Report refers to house price developments in 2013, the small increase in Irish house prices in that year was well below the threshold for this indicator and therefore did not trigger an alert.  It should be noted, however, that Irish residential property prices increased by 16.3 per cent in the year to October 2014.

The most recent forecasts by my Department, for Budget 2015, estimate an average annual rate of HICP inflation of 0.5 per cent for this year. In this context, the annual HICP inflation in the year to date has averaged 0.4 per cent. As such, we continue to operate in a low inflation environment. It is also important to note that deflationary trends were highlighted as an economic risk in Budget 2015 and continue to be monitored in this regard.