Consumer liberators are cynical opportunists

THE issue of inflation has taken a distinctively populist tone in recent times with everybody now apparently seeking to become the champion of the beleaguered consumer.

Fine Gael has just launched a website where people are given an opportunity to moan and bitch about prices they have been charged for goods and services, and

their conference in Galway last weekend saw lots of populist ranting about prices in general.

The Taoiseach made similar noises at the IMI conference in Killarney earlier this year, and on several other occasions besides.

Then in recent weeks we have been treated to a media campaign, paid for by the Director of Consumer Affairs out of taxpayers money, urging people to shop around and become more price conscious.

Frankly, I find most of these populist activities ill-informed, too late, and in general, a bit sickening.

There are very good reasons why Ireland’s general price level has taken off in recent years and it is now too late to do anything about most aspects of the problem.

There is no doubt but that Ireland has seen a surge in prices over the past five years. Between January 1999 and October 2003, the Consumer Price Index increased by a hefty 22.6%.

In the preceding five-year period to the beginning of 1999 the equivalent increase in the Consumer Price Index was 9.6%, less than half the increase over the past five years.

Clearly, the dynamics of Irish inflation have changed since 1999 and the change is almost exclusively due to Social Partnership economic management and EMU membership.

These are policies that Fine Gael and all of the main political parties have been totally in favour of, so it is now a bit rich to hear so much moaning about the cost of living from certain quarters.

In fact if one turns one’s mind back to the run up to EMU one will remember that dissenting voices were seriously frowned upon by the business and political elite in this country, just as any criticisms of the Social Partnership model are not exactly the best way to pick up lucrative Government consultancy work.

The fact is that EMU membership, combined with the Social Partnership model, are the key reasons why the Irish price levels haves increased so much. in recent times.

They may have contributed positively to other aspects of Irish life, but the general cost of living cannot be included in that category.

Ireland joined EMU at a time when the economy was already on fire and it then had to endure an exchange rate and an interest rate level that were way too stimulatory for Ireland’s unique economic situation.

At the same time the social partners pushed through substantial tax reductions and dramatic increases in public spending in an effort to keep the social partnership model afloat.

In other words all economic policies were very stimulatory and gave an unnecessary boost to an economy that was already growing strongly.

The net result was a surge in demand, and as any Leaving ert economics student will tell you, when demand surges ahead of supply, prices will inevitably rise.

That is exactly what has happened in Ireland over the past five years. In the labour market, the situation was mirrored very closely, with excessive labour demand leading to a strong upward adjustment to wages.

Now, thanks to a significant slowdown in the international economy over the past couple of years, demand pressures in the Irish economy are abating and the euro is appreciating strongly on the exchanges, resulting in an easing in Irish inflationary pressures.

The headline rate of inflation is now back down at 2.3% and should go lower over the coming months.

Yet we only now hear the champions of consumer rights coming to the fore, because they will expect to get credit for the easing of inflationary pressures, despite the fact that they will have played absolutely no part in the process. Cynical political opportunism should be treated with the derision that it deserves.