Inflation figures - Price hikes will fuel wage demands

In the face of a three-year high inflation rate of 3.8% and the prospect of further higher interest and fuel charges, the message to workers on restraint in the pay talks from Finance Minister Brian Cowen is likely to fall on largely sceptical ears.

The latest inflation figure from the Central Statistics Office (CSO) completely outstrips the average European rate of 2.2%, following the 0.8% last month, and is now verging on 4%.

It means that inflation rose by 1.3%, or almost one-third, since the beginning of this year, and Ireland is already one of the most expensive countries in which to live in Europe. Last month, household items such as electricity, gas and other fuel prices rose.

Because of higher interest rates introduced by most of the financial institutions because the European Central Bank (ECB) increased rates in recent months, mortgage interest repayments have been higher.

It is not over yet. It is anticipated that the ECB will move on even higher rates next month, and a Bord Gáis price hike is likely to push annual domestic bills up by €380, if its application for a 40% price increase is allowed.

Yesterday’s news on inflation will have an obvious impact on the pay talks, with unions looking on a cash-rich economy and employers advocating, like the minister, restraint in order to improve competitiveness.