McCreevy doubles inflation forecast to as high as 5.25%

The Minister for Finance has almost doubled his inflation forecast to as high as 5.25 per cent on average this year.

The revised figures are in sharp contrast to Mr McCreevy's Budget estimate of 3 per cent in 2000 and 2.5 per cent over the period of the Programme for Prosperity and Fairness (PPF).

The forecast was increased to 4 per cent by the Minister earlier this year and has now been revised upwards to between 4.75 per cent and 5.25 per cent.

Speaking at the implementation review of the PPF yesterday, Mr McCreevy said the Government was very concerned about the impact inflation could have on economic performance.

"We must make every effort to avoid any action which would bring no long-lasting benefits to the employee and would have an adverse impact on our competitiveness and lead to a loss in employment.

"The challenge for policy is to maintain economic stability so that we can sustain economic and social progress into the future," he said. According to Mr McCreevy, present estimates by market commentators and analysts for average inflation this year seem to be largely in the 4.75 to 5.25 per cent range. "I do not expect that my Department's estimate will break with this consensus." The Department's average inflation figure for the year 2000 will be published early next month in the annual Economic Review and Outlook.

The Minister added that headline inflation will rise further from 5.5 per cent before falling back somewhat in December. He noted that the expected fall in December is due mainly to a so-called "base effect" related to the increase in cigarette prices which added about 0.75 of a percentage point to the consumer price index.

The Taoiseach, Mr Ahern, has already told the Dail that inflation is likely to peak at 6.25 per cent later this year. Yesterday he repeated that price stability and low inflationary growth are the best policies for the Government to pursue.

Mr McCreevy also pointed out that both oil prices and the euro need to stabilise to reduce year-on-year inflation figures. "If oil prices fell or the euro strengthened, the reduction in the CPI would be greater still," he told the social partners.

Mr McCreevy also hinted that there may be further action taken to reduce inflation. The abolition of the Groceries Order, which bans below-net invoice selling, has been looked at by the Tanaiste, Ms Harney. According to Mr McCreevy, the Government recognises the need for competition and regulatory reform. "We are committed to a structural reform programme to encourage competition across a whole range of markets."

He again stressed the recent growth in the economy which, he said, is "the envy of many of our European partners".

"Our economic growth in recent years has conferred significant benefits on the Irish people. Irish living standards, as measured by per capita GNP, reached about 90 per cent of the EU average in 1999, compared with about 60 per cent in 1993.

"The number of people in employment is now about 1.6 million, an increase of about 500,000 since 1988. The unemployment rate is now down to 4.5 per cent from 16.3 per cent in 1988."