Pay awards agreed for workers in national wage talks under way between the Government, employers and unions must be in line with foreign competitors, Minister for Finance Brian Cowen said today.
His comments came after data showed inflation rose to 3.8 per cent on an annual basis in April - the highest in more than three years.
"Over the longer term, a cost base which is out of line with competitor countries will undermine economic potential," Mr Cowen said in the text of a speech to be delivered in Dublin.
"In the context of the ongoing pay talks this means that pay awards must be benchmarked against our competitors to support the maintenance of Ireland's international competitiveness and the long-term durability of our economic performance."
The pay talks are being closely watched amid fears unions will demand a large pay hike to take account of Ireland's rising inflation.
The European Central Bank sees wage restraint as a key element in keeping prices in check.