Inflation of 5% - We will pay with trade and jobs

For years the Government has been telling us that we have never had it so good, but not enough was being done to ensure that the benefits of the Celtic Tiger economy were being protected.

Now we are facing serious problems with inflation, which threatens our competitiveness in the global economy.

The latest inflation figures for the month of March reflect a 5% increase in the Consumer Price Index. This is being attributed largely to international factors. The price of oil soared on the international market, but the actual increase in this country has been cushioned by the increase in the value of the euro against the dollar, in which oil is priced.

In the past two years the euro has increased in value by 23% against the dollar, which has helped considerably in absorbing the shock of the oil price increases. There has been a knock-on impact in relation to the cost of other items as a result of increased transportation costs.

Food prices have increased about 10% in the past year, along with clothing. Internationally, these prices are likely to continue to increase, as the United States becomes a grain importer instead of a grain exporter for the first time. This is partly the result of diversion into biofuels in the quest to combat global warming.

But those increases should also have been cushioned in our market by the increase in the value of the euro against sterling. In the past 12 months the euro has gained 14.3% against the pound, almost the same as the gain against the dollar in the same period.

This has not been good news for our exports, as the strength of the euro is undermining our competitiveness abroad. There should be a compensating factor in that this should have led to a decrease in the price of imported goods, but the large chain stores have not been passing on the savings to consumers.

They have been getting away with this because of a distinct drop in competition in recent years. Even though our population has been increasing, especially with the influx of people from abroad, the number of stores selling groceries has actually declined by more than 20% in the five years to 2006. With the decline in competition, some of the larger chains have become complacent in their pricing.

The National Consumer Agency is concerned primarily with ensuring that prices are properly advertised, but it could do more to highlight the fact that the benefits in relations to the strengthening euro are not being passed on to Irish consumers. People should be encouraged to shop around where possible.

Society will probably end up paying the ultimate cost, which will be in terms of a loss of business and thus employment at home, because of our inevitable loss of competitiveness on the international markets. Our cost of living is already significantly higher than in competing countries and is rising at a faster rate.

If real steps are not taken to tackle the inflation problem, this will inevitably have a knock-on impact in relation to wage demands. This will fuel the vicious spiral of inflation and thereby further damage our competitiveness.

The Government must tackle these problems without delay. It certainly cannot afford to go into suspended animation.