Bernard Durkan (Kildare North, Fine Gael)
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105. To ask the Minister for Finance if he has identified specific inflationary tendencies within the economy; if so, his plans to address such issues; and if he will make a statement on the matter. [45072/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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Over the past few years consumer price inflation has been near zero in Ireland and in the euro area more generally. In 2016 annual inflation in Ireland – as measured by the Harmonised Index of Consumer Prices (HICP) was slightly negative at -0.2 per cent.

While inflation has picked up in the rest of the euro area, inflationary pressures have remained muted in Ireland in 2017. This is largely due to the continued impact from euro-sterling exchange rate developments.

Looking forward, futures markets for oil are suggesting oil prices will continue to stay around their current low levels over the course of 2018. In addition, non-energy industrial goods are likely to continue to be a significant drag on inflation next year, reflecting euro-sterling exchange rate developments. Against this, the continued growth in domestic demand and the ongoing recovery in the labour market are expected to lead to further services price inflation. Taking all these factors into account, price pressures are expected to rise only modestly in 2018. As part of Budget 2018, my Department forecast HICP annual inflation of 0.2 per cent for this year, rising gradually to 0.8 per cent in 2018.

While consumer price inflation is not expected to rise dramatically over the near term, my Department continues to monitor inflation developments very closely. Any emergence of sustained price inflation would put pressure on the competitiveness of those sectors that are heavily dependent on exports. This is particularly true for the indigenous manufacturing, the agrifood sector and price sensitive service sectors. In this regard, it is important that, at firm level, overall costs do not get out of line with our competitors and that pay moves in line with productivity developments.

This government will therefore continue to implement competitiveness oriented policies which is the best way domestically to counteract any inflationary tendencies and potential loss of competitiveness.