Inflation rate increases - Social Partnership under threat

TAOISEACH Bertie Ahern warned yesterday that “we are entering a period of more challenging economic conditions”.

This was following news that the latest cost of living increase was twice as fast as this time 18 months ago.

This comes in the wake of the eighth rise in interest rates in the same period. That rise will further compound the inflationary pressures. Inflation has gone from 2.5% to 5% since December 2005.

Maybe people should not be surprised.

It is not the first time that a government painted an unduly bright picture of the economy before a general election, and then had to come clean to face stark reality afterwards.

Other figures released this week showed that the Exchequer take was down on the projected figures for the first time in five years.

This cannot be explained just by the stamp duty controversy retarding the sale of houses in the current climate of uncertainty. Income tax was down by €56m on projections, while capital gains tax was off by €78m and excise duties were out by €121m.

The drop was compounded by the splurge in government spending, which stood at €19.4bn at the end of May. This was up €2.7bn, or a whopping 22.7% ahead of spending recorded during the same period last year, when there was a surplus of €1.8bn.

Our inflation rate is running 20% higher than the average for the remainder of the European Union. In the past 12 months, housing, water, electricity, gas and other fuels jumped by a staggering 22.6%, which accounted for 65% of the annual inflation.

If this is allowed to continue unchecked, the current rate of inflation is likely to exceed the pay terms of the Social Partnership Agreement, and this will generate a new set of problems, especially with the unions.