Isme: State costs threaten sector

The public may be relieved that consumer prices are not rising rapidly, but business body Isme believes stagnant prices and rising wages are eroding companies’ margins.

Isme’s reaction came after the Central Statistics Office reported the rate of inflation fell marginally since January to 1.1% as the cost of communications and furnishings pushed inflation down.

Isme chief executive Mark Fielding said: “Even with a slight improvement in our competitiveness, there is still a long way to go to regain previous levels. Many existing SMEs find it extremely difficult to profit from any productivity increases or cost reductions because of legacy leases, long-term agreements and old wage rates.”

Isme called on the Government to reduce the costs to businesses in relation to energy, government charges, legal services and exporting. It said the focus must be on maximising privatisation of the state sector where appropriate, and removing barriers to competition in sheltered sectors.

“The future competitiveness of the country is vital in the battle out of recession; business continues to drive but the danger is that increasing state costs will sabotage the private sector efforts. Government must step up to the plate and take responsibility now, instead of wittering on about the dream of 2016 and 100,000 extra jobs,” he said.

The inflation rate is 1.1% higher than it was in February of last year as rises in the cost of alcohol and tobacco, restaurants and hotels and miscellaneous goods and services drove the index up.

Alan McQuaid of Merrion Stockbrokers said the outlook is that inflation will remain low for the foreseeable future, as the remaining budget measures hit disposable income again.

“Domestic inflationary pressures in Ireland are likely to remain depressed for some time to come.

“Continued weak consumer demand will put downward pressure on prices in the months ahead.

“The fiscal measures announced in Budget 2013 will again hit disposable incomes, which in turn will weigh negatively on spending power,” he said.

“However, indirect tax hikes will add to the CPI in the coming months, but in overall terms it is very much a picture of subdued price pressures, which will help ease the pain to some degree on the household sector,” said Mr McQuaid.