The Government inflation target for 2000 - revised only last month from 3 per cent to 5.25 per cent - is already in danger of being exceeded after the release of the July inflation figure. The Labour Party yesterday said the Dail should be called back early from its summer break to approve emergency remedial measures while union leaders called for additional pay rises as inflation hit 6.2 per cent, its highest level for 15 years.
The Consumer Price Index for the 12 months to the end of July came in at the top end of expectations, fuelled by higher mortgage rates, rising transport cost and an unexpected jump in food prices. Even a 9.2 per cent fall in the price of clothes last month due to the summer sales failed to take the sting out of the figure. The sharp rise in food prices is bound to renew debate about whether the Groceries Order should be lifted. This order bans below-cost selling of groceries and is designed to protect smaller retailers from competition from major multiple groups. It is currently being reviewed by the Tanaiste, Ms Harney.
There was a glimmer of hope for the Government as the rate at which the cost of living is increasing seems to have eased, although the upward spiral is predicted to continue for some months to come. The CPI rose 0.3 per cent last month compared to 0.6 per cent in June. Last month's increase in mortgage rates will not feed through fully until this month and is expected to push inflation higher again in August. Housing costs have risen by more than over 10 per cent in the last 12 months.
Another rise in interest rates is predicted later this month or early next month when the European Central Bank moves to prop up the ailing euro. This increase will push up inflation in September. It was left to the Government Chief Whip, Mr Seamus Brennan, to defend the figures in the absence of the Minister for Finance, Mr McCreevy. He said the rise was not unexpected and that inflation would ease later in the year.
The Irish Congress of Trade Unions said that it will seek compensation for workers on fixed incomes in its submission to the government on Budget 2001. The trade unions will also renew its efforts to get the Government to introduce a number of short-term remedial measures including cutting the duty on fuel and VAT on certain items.
Mr Des Geraghty, the general president of SIPTU, said the wage rises agreed under the first phase of the current national agreement - Partnership for Prosperity and Fairness - have now been wiped out. Several union leaders have now called for additional pay rises. Sen Joe O'Toole, of the Irish National Teachers' Organisation, has called for an additional 5.5 per cent increase on top of the 5.5 per cent rise due this year. He has received the backing of the ATGWU whose regional secretary, Mr Mick O'Reilly has endorsed the demand.
Although an increase in inflation had been expected this month, the nature of the increase surprised some economists. Housing showed the biggest increase which had been expected as a result of interest rate hikes but the extent of the increase in food prices was unexpected.
"The real surprise is food prices which account for almost a quarter of the index. They are up 2.5 per cent on the year and more alarmingly have risen by 1.6 per cent in the last three months," said Mr Dan McLaughlin, economist with ABN-Amro.
Food prices in Europe are flat and in the UK - which also published inflation data yesterday - they have risen by less than 1 per cent year on year, he said.
The main reason why food prices are rising is the lack of real competition in food retailing, he said. "If you look at other sectors of the economy where demand is strong and there is competition, such as telecommunications, prices are falling," said Mr McLaughlin.
Inflation will start to fall towards the end of the year, as the Government predicts, according to Mr Niall O'Sullivan, economist with Bank of Ireland Treasury. In the short term it could rise as high as 6.5 per cent, he said. "In the final quarter of the year there should be less volatility in the euro and in oil prices. Our end of year forecast is in the region of 5.5 per cent," he said.
Mr Michael Noonan, the Fine Gael spokesman on Finance, accused the Government of standing "idly by" while inflation made the vast majority of Irish people poorer. He supported calls for a review of the PPF and additional powers for the Competition Authority and the Director of Consumer Affairs.
