EU warns McCreevy of need to act on inflation

In his bluntest statement on the issue yet, the EU Commissioner for Economic Affairs, Mr Pedro Solbes, yesterday again warned…

In his bluntest statement on the issue yet, the EU Commissioner for Economic Affairs, Mr Pedro Solbes, yesterday again warned the Minister for Finance of the need to take fiscal or other measures to curb inflationary pressures in the Irish economy.

Responding to the rise in inflation to 5 per cent - as the rate in the rest of the euro zone dipped - Mr Solbes's reference to Ireland's "ever-increasing inflation rate" is likely to be seen as a none too subtle hint that he has doubts about Mr McCreevy's repeated assurances that the rising index is a temporary aberration.

"The ever-increasing inflation rate in Ireland confirms the Commission's view that there are risks of overheating in the Irish economy, as published in the Commission's recommendations in the Irish stability programme earlier this year," Mr Solbes said. "The need to counterbalance this rise in inflation by fiscal policy and other measures should be on the agenda of, or should be seriously considered by, Irish economic policy-makers."

Agreeing with Mr Solbes's comments, the Fine Gael finance spokesman, Mr Michael Noonan, said a reduction in excise on petrol and diesel was more than justified, "at least to compensate for the adverse CPI impact of the rise in tobacco products in the Budget". Meanwhile, Eurostat reported that inflation in the euro zone as a whole fell in April to 1.9 per cent, from 2.1 per cent. In the 15state EU, the figure also dropped by the same amount proportionately, to 1.7 per cent in terms of the EU's harmonised index.

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After the Republic, the highest inflation rates were in Luxembourg (3.2 per cent) and Spain (3.0 per cent). The lowest was in the UK (0.6 per cent, down 0.9 per cent). In annual terms, the Irish rate of 3.6 per cent is a full percentage point above the next highest, Spain, and 1.7 points above the average in the euro zone.

Mr Solbes said the Commission welcomed the EU data, "although it is not appropriate to judge on the basis of one month's figures. The Commission stands by its forecast, published last April, which envisages the annual inflation rate for 2000 to remain below the 2 per cent target set by the European Central Bank for both the euro zone and the EU15.

An easing of high energy prices "together with the acceleration of structural reforms, this should lead to lower inflation rates in the second half of the year."

Patrick Smyth

Patrick Smyth

Patrick Smyth is former Europe editor of The Irish Times