Public sector costs fuelling inflation

IRELAND’S inflation rate of 2.3% would be just 1.6%, but for continued increases in taxes and public sector charges it emerged yesterday.

The cost of living fell by 0.1% in October, pushing the annual inflation rate to a four-year low of 2.3% down from 2.9% a month earlier.

The Consumer Price Index published yesterday by the Central Statistics Office October 2001 show the CPI fell by 0.1%, this compares with an increase of 0.5% in October of last year.

However, with increased Government costs passed on to the consumer making up more 50% of the increase in the cost of living 1.3% of the 2.3% inflation rate leading economist Austin Hughes of IIB Bank said yesterday that the rise in public sector costs are unsustainable.

Mr Hughes believes that, because charges for a high profile range of public sector services are rising at a much faster pace, perceptions of both the cost of living and the cost of doing business in Ireland may not fully reflect the sharp drop in the official inflation rate in recent months.

"This is because what might be termed the public sector component now accounts for up to 1.7 percentage points of Ireland's current 2.3% inflation reading. This is not sustainable," he said.

Mr Hughes said the improvement in inflation last month was broadly based.

"As such, it reflects two main influences, continuing downward pressure on prices worldwide because of excess capacity on world markets and, encouragingly, a further easing in domestic price pressures in a range of areas," he said.

Mr Hughes said a rate of 2.3% inflation no longer poses a significant competitiveness risk to the Irish economy.

"The easing in domestic costs reflected in a drop in services sector inflation to 3.3%, the lowest rate since December, 1999. On the 'harmonised' measure used to compare inflation rates across Europe, the Irish inflation rate for October fell to 3.3% from 3.8% in September.

"While this is still some way above the euro area average figure of 2.1%, it is the smallest gap since May 2001," he pointed out.

IBEC chief economist David Croughan said that the fall in the rate of inflation to 2.3% in

October was a very heartening development and one which it was essential to sustain if Ireland was to begin to claw back some of the lost competitiveness incurred in the last few years.

We are only now beginning to approach inflation rates nearer to the EU average after three years of excessively high inflation.

Mr Croughan warned that there was no room for complacency as inflation excluding mortgage rates was 3.2%.

Mr Croughan said that the figures demonstrate the Government was the largest contributor to inflation, with the utilities and local charges index up 10.4%, health up 6.9% and education up 6.9%.