Warning of inflationary spiral by business group

THE Irish Business and Employers Confederation has warned that the country is in danger of going into a vicious inflationary spiral that could cause long-term damage to its potential growth rate.

In its pre-Budget submission, IBEC said that a 2% inflation target needed to be achieved through wage moderation, public spending restraint and stronger competition throughout all sectors of the economy.

“The heady days of the boom are over; it is time to bring the public finances under strict control,” IBEC says.

Greater value for money must be obtained for every euro that is spent. There is room for spending increases in priority areas, such as health, but these must be accommodated under a strict overall spending envelope, the business body says.

“A sharp reduction in the rate of growth in current spending will ensure that funds remain to provide for roads, public transport systems and telecommunications infrastructure.

“Private sector finance for priority infrastructure must also be encouraged and facilitated,” the submission states.

IBEC says tackling the rapid acceleration in current public spending must be the top priority of government.

“In the three years to 2002, current spending on goods and services will have increased by 52% and could be higher if the 2002 spending targets are breached.

“Revenue growth has all but stagnated and employment and the stability of the economy are at risk in the face of these trends.”

Inflation will remain above the EU average this year, largely as a result of very high service sector inflation, IBEC said, echoing recent remarks by Central Bank officials.

“This is linked closely to the high double-digit wage increases conceded in the last 12 months, other rising business costs and the sheltered nature of the businesses,” the submission said.

IBEC’s economists anticipate inflation of 4.6% this year, falling slightly to 4% in 2003.

And they say leadership is required to cut the inflation psychology by demonstrating a firm commitment to tackle those areas of domestic activity that require redress.

IBEC says that inappropriate policy, including the increase of excise duties on tobacco and the renegotiation of the PPF on foot of higher inflation was mistaken and shows up in various “bottlenecks.”

The submission outlines a 10-point anti-inflation plan and says such actions should be given a “high political priority” by the Taoiseach, Bertie Ahern, the Tánaiste Mary Harney and the Minister for Finance Charlie McCreevy.