Minister for Finance Brian Cowen yesterday insisted inflation was under control and said that prices should begin to moderate early next year, writes Jamie Smyth in Helsinki
However, he said he "regretted" the timing of the 20 per cent hike in electricity prices proposed by the energy regulator, and hinted that he would help people on fixed incomes in the upcoming budget.
Speaking at a meeting of EU finance ministers in Helsinki, Mr Cowen said: "My social welfare increases last year in my budget were between 8 and 11 per cent.
"We have been making provision in excess of inflation consistently in this administration. I think it is an issue we have to keep a very close eye on. I am conscious of people on fixed incomes. Very conscious."
The Commission for Energy Regulation (CER), led by Tom Reeves, yesterday announced it proposed to give the ESB and Bord Gáis the go ahead to raise energy prices by almost 20 per cent and 34 per cent respectively to help the semi-State bodies tackle soaring fuel costs.
The average household will pay a bimonthly electricity bill of €150 from January 1st if the price rises are granted, up from €126 at present. The average annual gas bill will climb to € 1,208 from €902.
On Thursday, the Central Statistics Office published data showing that Ireland's inflation rate jumped to 4.5 per cent last month, up from 4.2 per cent. Analysts have warned inflation could reach 5.5 per cent by December or January 2007.
Mr Cowen said he did not think the inflation rate would reach this level, but warned that he expected an increase in inflation this year if there was another interest rate hike by the European Central Bank (ECB). He estimated the average annualised inflation rate in the calendar year could be 4 per cent before the rate begins to moderate towards the second quarter of 2007.
Meanwhile, at the Helsinki meeting, ECB president Jean Claude Trichet reiterated that "extreme vigilance" was needed to prevent the risk of inflation across the euro zone. The EU's top monetary and economic policy officials also called on EU states to use the strong economic growth to step up their efforts to cut budget deficits.
"The idea is that any good news coming from projections that are better than expected should be put as a principle into diminishing deficits," Mr Trichet said.
He also delivered a stiff warning to euro-zone finance ministers to back off in an escalating dispute over the bank's independence.
Mr Trichet pointed out that it was his signature on euro bank-notes and that it was unlawful under the EU treaty for finance ministers to give instructions or try to influence the bank.
(Additional reporting Financial Times service)