ESRI warns of wage inflation

Wage inflation remained the key concern to continued growth and prosperity in Ireland, delegates were told at yesterday's Economic and Social Research Institute's 40th anniversary conference.

"The impact of this year's inflation on the household is obvious," said the organisation's president, Sir George Quigley.

"But the real risk to competitiveness arises if the headline figure were to set off a compensatory wage spiral. Experience worldwide amply demonstrates that an ongoing attempt to keep pace with inflation surely reinforces it," he added.

Mr John FitzGerald, a research professor at the ESRI, said inflation was a problem but it would most likely be brought under control due to pressure from the single market. "Wage rates are rising rapidly, and they can, and should, rise rapidly this year. But if that continues we could lay out problems in the longer run. I am concerned about inflation in the labour market," he said.

Timely delivery of the elements of the National Development Plan will also be a key driver to ensuring continued economic growth, said Prof FitzGerald.

"Unless we deal with the infrastructural constraints, in particular housing, the economy will continue to grow but significantly more slowly over the next decade - that's going to stop the economy maturing and achieving its potential," he said.

"The development plan is right, the money is there but the problem is: are there the people to build the infrastructure? They're running into serious problems delivering the infrastructure."

The prospect of Ireland running out of resources, particularly labour, is a serious risk, according to Sir George. He added: "Going forward, it is clear that female participation and migration - mainly those who are not part of the Irish diaspora - will have to take much of the strain if there is to be an adequate labour supply."

And while Ireland's continuing integration into the global economy increases its risks to global shocks, the industries locating in Ireland should prove more resilient, Sir George said.

"High-tech sectors in which Ireland is strong could go sour but these industries are `real' and if anyone in business has a future, it must surely be producers of microchips, telecoms equipment, computers and software.

Ireland is building on its strengths in information communication technology to participate fully in the new industrial revolution sparked by digitisation," he said.