The terms of the Programme for Prosperity and Fairness (PPF) must be strictly adhered to, the Minister for Finance, Mr McCreevy, has warned.
In a statement on the economy to the Seanad, Mr McCreevy said he is concerned about the increases in underlying domestic inflation. Last month services inflation reached 6.5 per cent and rose to more than 7 per cent if the cost of telecommunications is excluded.
"This is a worrying development and to some degree must reflect an acceleration in wage inflation and some margin building for higher profits," he said.
Responding to recent criticism that he was not worried about rising inflation, the Minister insisted that he was "as concerned" as any of the domestic or other commentators who have raised the issue.
"We must do all we can to contain these pressures. This means we must strictly adhere to the pay terms of PPF. Otherwise we could find ourselves in a damaging wage price spiral from which no one would benefit. We must also continue to foster competition throughout the economy," he said.
"We in Government intend to fully honour our commitments. It is vital that each of the social partners does likewise and in particular the pay terms are adhered to."
Mr McCreevy also repeated his forecast that inflation will average 4 per cent this year before falling back, which is higher than expected when the terms of the PPF were being negotiated.
But he said that the agreement is for three years and inflation will fall back from current levels. "I am confident that the agreed pay increases combined with the promised tax reductions will provide for continued gains in real disposable incomes."
He added that over the 33 months of the agreement the take-home pay of workers will increase by 25 per cent or more.
The Minister also outlined forecasts from his Department which show that the economy can continue growing faster than other EU and OECD countries over the medium term. Growth of about 5 per cent can be maintained, he said. He added that although demographic factors will translate into sluggish labour force growth in the longer term, growth should be about 2 per cent to 3 per cent.
