Government warned as inflation hits 5%

THE Government must get a grip on wages and prices to tackle inflation after the rate hit 5% last month, economists said yesterday.

Inflation increased from 4.8% in February to 5% in March, its highest level in four months according to the Government’s Consumer Price Index.

The key drivers of inflation were housing costs and fuel bills, which were up 12.3% on March last year, as well as food, which rose by 9.3%, and education, up by 5.9%.

IIB Bank chief economist Austin Hughes said the taoiseach-in-waiting Brian Cowen, and his successor as finance minister, had to ensure Government action did not add to Ireland’s inflation woes.

“Good economies respond to these painful circumstances in progressive ways but poorly performing economies seek to protect themselves and insulate themselves by raising prices and wages, causing weaker economic efficiencies in their economies.

“The key question is how do you respond? That’s where the difficult work is for Mr Cowen and his successors: anything which boosts inflation is bad news.

Mr Hughes said Irish inflation was broadly in line with European rates, showing that the cost of living was at the mercy of global factors like higher commodities prices and energy costs.

The European Union harmonised index of consumer prices shows Irish inflation last month was 3.7%, its highest for four years on the scale.

The EU average is around 3.5% while inflation in Britain and the North on the same measurement is 2.5%.

Alan McQuaid, of Bloxham Stockbrokers, said Mr Cowen had to tackle inflation by targeting public sector wages and costs.

“While there is little the Government can do about high commodity prices, it can still help to keep domestic costs down by not sanctioning over-the-top price increases for the public service,” said Mr McQuaid.

“The Irish economy is going through a significant re-adjustment phase at the moment, and it is imperative that wage costs and public service charges are kept down to ensure that the economy remains competitive.”

Small business organisation ISME said inflation was hampering business — and claimed the Government lacked a coherent policy on the problem.

“The rate of inflation is now a key determinant in the decision making of small business owners who are heavily influenced by the cost environment, particularly the impact it has on wages and labour costs,” said ISME boss Mark Fielding.