Economist warns of major strikes due to high inflation

INFLATION and its impact on consumers and the economy continues to be a major talking point.

Even at present levels it is causing major problems and could lead to major strikes in 2003, a top economist has warned. Officially the inflation figure is 4.8%, but consumers know it is far higher.

Chief economist with Bloxham Stockbrokers, Alan McQuaid does not believe the present figure. "It is certainly higher than the official figure, but by how much no one knows," he said.

Some guesstimates put the true figure as high as 8%. If it persists the fear is that the consumer will be priced out of the market.

Evidence exists to support the view that big ticket items such as fancy TVs, cars, and other white goods are not selling as fast.

Figures show that consumer spending has nose-dived. It held up well last year, but it has slowed considerably since the start of 2002.

The reality is that retail sales by volume fell in the first two quarters of 2002. If cars are excluded the figures were flat.

Overall, thevolume of retail sales was up 0.8% over the same period last year. Excluding garages, the increase was 3%, but the overall picture is one of a consumer who has seriously lost the desire to spend money.

Figures showing the consumer pulling back is borne out by evidence from two other sources.

The ESRI/IIB Index in recent months has hit its lowest point since the survey began, while footfalls in two of the country's top shopping precincts are seriously down for the first nine months of the year.

The Insignia Richard Ellis Gunne survey shows footfalls down by 16.7% in Dublin's Grafton and Henry Streets, two of the country's busiest shopping destinations.

Another difficulty is the slow down in the rise of real disposable income, which is a function of inflation.

Back in 1997 the increase was 8.4%. It fell marginally to 7.5% the following year and increased again to 9% in 1999 when economic growth peaked.

Real disposable income fell back to the 7.5% level in 2000 and fell sharply to 5.9% last year. Its projected rise in 2002 is a modest 3% and for 2003 an even more modest 1.5% is on the cards, insists Robbie Kelleher, head of research at Davy Stockbrokers.

Without doubt the consumer is waning. Taking consumer confidence as 100 at the start of 2001 that figure has fallen to just over 60 by end September, said Mr Kelleher.

Davys have also revised its consumer spend for this year down from a rise of 3% to 2% and has pencilled in an unchanged 2% increase for 2003 for good measure.

Just how much service inflation is impacting on consumer habits is difficult to say but people certainly feel they are paying a lot more for their goods than the 4.8% claimed by the most recent Consumer Price Index calculation.

Economists are concerned. Inflation is staying stubbornly high as economic growth has shrunk from over 9% to closer to 3% in GNP terms.

If that trend continues the real danger is that we could enter a period of stagflation, which describes a stagnant economy and rising inflation. It is a dangerous phenomenon and could lead to wage demands getting out of control.

In that context Mr McQuaid says: "I will not be surprised if there are two or three major strikes next year because of the inflation factor."

Overall the economy is on the shakiest ground it has experienced for a long time.