Ireland's prices just aren't worth the trip

Like everyone who's been to the continent this year I've come home with a view that prices in Ireland are higher than comparable ones abroad. And yet, according to economic statistics in the newspapers they're not or - if they are - it's because taxes are higher here, or transport costs are different or that I'm not really comparing like with like.

Whether or not prices are significantly higher in Dublin or Galway or Cork than Barcelona, Faro or Milan is a moot point to those of us who know that both the cost of the goods in our supermarket trolley and our entertainment bills have certainly gone up. Inflation in Ireland has been above the EU average since 1997.

The ECB's target inflation range is currently 2 per cent and generally European inflation is pretty close to that target. But for us it's a different story.

Although inflation in Ireland was only around 1 per cent in 1998, it was still a little higher than the EU average and that gap steadily widened until mid-2000 when Irish inflation was just over three percentage points higher, at 5.7 per cent.

For those of us who grew up in double-digit inflation times, 5.7 per cent doesn't sound so frightening, but everything is relative and, if the inflation rate of your closest trading partners is much lower, then that rate is more significant.

But for those of us who think it's all caused by hikes at the supermarket, we're actually wrong. Because, even though two years ago goods price inflation was a good deal higher than the EU average, it's currently more or less the same and the main reasons for any increase were those old reliables of tobacco and alcohol (as well as transport costs, which is why the supermarkets will tell you they've had to put up prices).

The big hitter for inflation in Ireland has been in the cost of services which, of course, isn't entirely a surprise because it includes restaurants and hotels. Now I know that the tourist board has brought out figures showing that a hotel room in Ireland is cheaper than a hotel room in Barcelona but the difficulty, of course, is that the ancillary costs - the breakfast, the cup of coffee, the night-cap - are all much higher here. Which is why we feel ripped off when we go for our weekend break and then realise that the cost of dinner that evening is nearly as much as the hotel room itself.

Restaurateurs can say all they like about the higher standard of restaurants in Ireland but not all of us want the linen tablecloths and the silver cutlery when we eat out - we just want good food at a reasonable price. Blame VAT and wage costs, say the foodies, because VAT in Ireland is three times the rate of the continent and, of course, wages have risen sharply.

Given the slowdown that has occurred in the economy over the past few months, it would appear that wages will begin to drift downwards again. So that may eventually be taken out of the equation. The VAT difference is an issue, certainly. Since we took the lead on lower corporation tax, which was generally deemed to be highly successful in creating jobs during the boom years, I really don't see why there should be an issue over lowering VAT for the provision of food services. But with tax revenues now below his previously wildly optimistic forecasts it's not a course of action that Charlie McCreevy has in mind. Yet it makes more sense than trying to sell the unsellable.

The fact is that more people think this is an expensive country to visit and fewer and fewer well-heeled people are coming here. Faced with the option of a location where they can have an excellent three-course meal including drinks for around €15 a head, or a two-course meal with one drink at €22 each, it's easy to see why tourists are voting with their feet and giving Ireland a miss.

Another phenomenon of the continental versus Irish dining out experience is that, in small continental towns, the prices are always much less than their metropolitan counterparts. Here, it's as costly to eat in a remote rural restaurant as its urban equivalent.

Of course it isn't only the tourism sector that's troublesome. Health, education and a variety of other goods and services have all seen much higher price inflation than the EU average. Services price inflation here is running at almost 8 per cent, which is phenomenally high.

While, in the short term, people are still signing their credit cards and having their expensive nights out, at some point the party will end altogether and leave Minister McCreevy in an even more precarious position than he is already.

However, while we grapple with our problems at the lower end of the entertainment scale, there's good news for the super-rich. Even though almost everyone is feeling poorer, what with stock markets plunging over the past year, the Forbes Cost of Living Extremely Well index rose by only 2.8 per cent. In comparison to our inflation performance that's pretty good, don't you think? But maybe it reflects a reluctance on behalf of the super-rich to spend.

Naturally when we're talking about Living Extremely Well and the items that make up the index, we're not talking about double-quilted toilet paper and a bottle of premium beer. The goods in the index include thoroughbred horses, jets and yachts. Still, the rich have to live too, you know.

Inflation is a matter of supply and demand as well as currency fluctuations (which themselves are a matter of supply and demand too). Ireland has been a very demand-led economy over the past few years. It will be interesting to see how we react to being a nation where supply comes into play again.

Still, regardless of any changes, I don't think that the night out or the weekly shopping is going to get any cheaper.