Inflation heads the wrong way at wrong time

INCREASES in direct taxes and the Government’s inability to cut income tax will pose major difficulties for wage moderation with inflation running at 4.5%, economist Austin Hughes warned last night.

The IIB Bank chief economist took an uncharacteristically pessimistic view of the Consumer Price Index figures for August which recorded an increase in inflation to 4.5% from 4.2%. He said Irish inflation is heading the wrong way at the wrong time: “The particular dilemma facing supporters of another National Pay Deal is the likelihood that Government intervention will be much less conducive to a modest pay deal in the current climate than in the past. In previous agreements, Government tax reductions eased the effective cost of the deals to employers.

“Unfortunately, this time around through increases in indirect taxes and public sector charges on one side and the likely absence of direct tax cuts on the other, the Government could deliver a troublesome one-two to hopes for pay moderation,” he said.