Inflation poses a `significant' threat, SFA warns

Long-term approaches to optimise the performance of the economy must be developed in the light of the significant threats of labour/skills shortages and inflation, according to the Small Firms' Association. In its Annual Summer Economic Statement director Mr Pat Delaney warned that planning for the future must take on board lower European Union funding, European enlargement, EU reforms, the infrastructure gap as well as a tightening labour market and rising inflation.

"Against the background of these economic circumstances we cannot rely on quick fixes and must address structural issues. To this end we must be consistent in our policymaking. Inconsistency in policies dents confidence. In the light of the strategic need to improve productivity and lower costs in indigenous industry, it is imperative that the current temporary rise in prices does not translate into permanent cost increases which would undermine Irish competitiveness", he said.

Commenting that inflation was now at the highest level for 14 years, he called on the Government to "be steadfast in their commitment to the wage aspects of the PPF (Programme for Prosperity and Fairness)".

A substantial increase in labour supply and a strict adherence to the terms and conditions of the PPF are vital to avoiding a wage/ price spiral, he commented. Mr Delaney added that the introduction of the national minimum wage of £4.40 (€5.59) per hour in April had "added significantly" to labour costs.

Warning that the underlying rate of inflation after stripping out the impact of oil prices and indirect taxes was 3.75 per cent compared to a euro zone average of 1.25 per cent, he said: "We cannot ignore the signals, there is a clear and present danger if we do". Mr Delaney said labour supply was the most important issue facing small businesses today and was the greatest threat to growth and wage moderation and ultimately inflation.

"We must aim to increase productivity through up-skilling instead of creating jobs which we do not have the people to fill," he said.