Consumer prices are rising sharply across the Republic amid warnings from a European Central Bank (ECB) board member that the economy risks overheating. Una McCaffrey and Marc Coleman report.
Inflation figures released by the Central Statistics Office yesterday show that prices are now growing at the fastest rate recorded in almost three years.
For March alone, monthly inflation came in at 0.4 per cent, with prices 3.5 per cent higher at the end of the month than they were a year earlier. This means annual inflation has climbed in each of the past three months, with some economists now expecting it to touch 4.5 per cent by the end of the year.
The inflation trend comes at a time of wider concern about the economy, with ECB chief economist Otmar Issing telling The Irish Times this week that he is worried about the rate of growth in mortgages in "well known" countries. Mr Issing specifically warned that the Irish economy was at risk of overheating.
"We have referred to the fact that we see the risk of overheating in some markets and probably now in general in the euro area as a whole. But this development is very expressed in a few euro area countries which are well known," he said.
The ECB is concerned by statistics showing that growth in mortgage loans in the euro area accelerated to 11.8 per cent in February. The equivalent figure for the Republic is 30 per cent, according to Central Bank statistics for that month. Mr Issing added that policy vigilance was necessary, regardless of the Republic's good economic performance in the past.
"So far, it is an example for good performance . . . At the same time there is always a risk that over time you become complacent. There is a risk of overheating. This is the other side, but I am confident that the Irish will be able to master the problem. But one must never be complacent."
Mr Issing's comments echo concerns raised this week by the Central Bank, which warned that a high dependence on the property sector posed a significant risk to the economy. The bank described a jump to 11 per cent in house price inflation as a "worrying development" that left open the risk of a correction. Current rates of housing construction are also too high, according to the bank.
A breakdown of the March inflation numbers shows that the annual jump was due in part to higher food prices and more expensive restaurants and hotels. Increased health insurance costs and higher local authority rents were also blamed.
Mr Issing refused to give any hint on the timing of the next interest rate movement but he warned against presumptions that there was a maximum ceiling above which interest rates would not go.
Opposition parties and business groups expressed some disquiet over the March inflation numbers, with most calling on the Government to do more to ensure that short-term price pressures do not become embedded in the economy.
Ibec called on the social partners to avoid being "blown off course" in partnership talks by short-term upward inflationary influences.
Fine Gael finance spokesman Richard Bruton said Government-controlled sectors still make an "enormous" contribution to inflation. Kathleen Lynch, the Labour spokeswoman on consumer affairs, also castigated the Government for failing to address the "underlying factors" leading to inflation.