Rip-off Ireland - State sector is stoking inflation

FAR reaching political, economic, employment and social implications flow from rip-off Ireland’s soaring inflation rate which is now 5.1% — well above the European average.

With Taoiseach Bertie Ahern preparing to go to the country within weeks, the latest statistics from the CSO represent bad news for the outgoing Fianna Fáil-PD administration. Especially since the CSO price analysis shows several of the main headline drivers of inflation are rooted in the State sector.

Over the year, the big changes involved consumer price increases of 23% in house mortgages, water charges, and the cost of electricity, gas and other fuels; alcoholic beverages and tobacco (+5.4%), education (+5.2%), restaurants and hotels (+4.6%) and health (+3.0%).

On average, Irish mortgage repayments soared by a staggering 47.5% in the past 12 months while rents are up by 9.9%.

Effectively, the CSO figures show that after falling to 4.8% in February, the annual inflation rate has crept up again and has now reached 5.1%. Overall, Ireland’s inflation rate has averaged 5% during the past four months and this is the second time it has risen to above 5% in three months.

Even if trends were assessed on the basis of Europe’s harmonised index of consumer prices (HICP) the Irish rate works out at 2.9% compared with an EU average of 2.1%.

The most significant monthly price changes here were in clothing and footwear (+2.1%), transport (+1.6%), housing, water, electricity, gas and other fuels (+1.0%) and restaurants and hotels (+1.0%).

The political difficulty for the Coalition partners is that Ireland’s inflation rate is on an upward curve. Admittedly, the Government has no control over oil prices and interest rates, but fundamental utilities like electricity and gas are rising faster here than elsewhere in euroland.

In the area of public utilities and service charges, for which the Government is responsible, inflation is running at 9.3%.

In stark contrast with most other developed economies within the EU, prices in the regulated State sectors of gas and electricity are increasing in Ireland. This reflects a key policy difference between, for instance, Britain and Ireland. In Britain, the interests of consumers are considered of paramount importance whereas in Ireland the pricing regime of State-owned monopolies is given preferential treatment.

Responsibility for this situation lies squarely at the door of this Government. Because while the regulators may be independent of the administration, the coalition failed abysmally to give sufficient weight to consumer interests when it laid down the original remit for the regulatory bodies.

Where consumers are concerned, as Richard Bruton, Fine Gael’s Finance spokesman, put it yesterday, the regulatory system is just not working. In this context a much fairer regime is badly needed.

Few would disagree with Dermott Jewell of the Consumer Association of Ireland who says the issue is now one of affordability for consumers. He points out that families cannot simply cut back on education costs, health charges, or the price of home heating oil.

According to consumer campaigner Eddie Hobbs, more job losses are looming as the competitiveness of the Irish economy is eroded. He claims that unless the Government takes action now to tackle the inflationary trend, people will have to be issued with life jackets.

With economists predicting that Ireland’s relatively high inflation rate is likely to persist, as further interest rate hikes, higher petrol prices, and dearer mortgages drive up the index, the outlook in the coming months is anything but bright.