With what country are we to compare ourselves in economic terms? According to the Government, we are a new Switzerland. But a survey by Fitch international rating agency concludes that Azerbaijan is a better comparison.
The agency has calculated a set of what it calls "macroprudential indicators", designed to measure exposure to a downturn in the world economy. Due to rapid credit growth, Ireland is now one of several countries Fitch believes to be most at risk. Others include Russia, Azerbaijan and South Africa. The finding coincides with a subtle but remarkable warning from the European Central Bank (ECB) about Ireland's "extraordinarily dynamic real estate sector". These warnings find expression here in the rate of inflation.
It is fair to acknowledge that ECB interest rate rises have been felt in a moderate increase in inflation across the euro zone. But the related booms in credit and house prices in Ireland have magnified that impact here. In attempting to explain why inflation has risen from 2.5 per cent in December to 4.5 per cent in August, the Government has referred to the ECB's recent interest rate increases as well as to oil price rises.
But bad as this week's figures for August inflation were, they do not yet capture the impact of August's rate hike. With further increases in the prices of electricity and gas set to come, not to mention further interest rate rises, analysts have predicted that Irish inflation will end this year at 5.5 per cent. But instead of restraining the economy, the Government is pump-priming it, accelerating public spending to double-digit rates in advance of an election. Another branch of Government, the Irish Financial Services Regulatory Authority, has at the same time presided over a significant expansion of credit.
Although reluctant to comment on the economy of an individual member of the euro zone, the president of the ECB this week described developments in Ireland's property market as "abnormal sectoral behaviour" and called for "executive branches" and "surveillance authorities" to take this into consideration in exercising their responsibility. It is as close to direct criticism of national authorities as any ECB president can come.
These failures of macroeconomic management by the Government are just one of the ways in which it has contributed to inflation. Six months after the abolition of the Groceries Order, the moderation in food-price inflation proves that reform can work. But the 7 per cent rate of inflation in the services sector shows how little reform there has been. In this regard, if inflation continues to climb, there will be no hiding place for the Government.