Rising inflation in the early part of this year was simply not countenanced by Minister for Finance Mr McCreevy or the social partners. As Mr Austin Hughes, chief economist at IIB Bank, put it yesterday: "Rumours of the demise of Irish inflation have been greatly exaggerated."
Following the revision of the Programme for Prosperity and Fairness last year, the Department of Finance estimated that inflation would average 4.5 per cent this year. The hope was that that would be an overestimate, leaving room for the Minister and the Government to be pleasantly surprised.
Certainly, at that time, it did not seem likely the estimate would once again be exceeded, putting further pressure on an already stretched industrial relations machinery.
But then the politicians had reckoned without foot-and-mouth and recalcitrant publicans. Food and drink prices are the major contributors to the unexpected rise in inflation and the problem is that these cannot be explained away as externally generated.
The Government is already coming under pressure fully to liberalise the pub trade, although this is a nettle it has consistently failed to grasp. The publicans will fight this vigorously at their annual conference in Westport next week but these figures may do their case irreparable harm.
Drink prices rose 1.5 per cent in April and by 5.6 per cent over the year, with increases in the price of beer, spirits and wine in both licensed premises and off licences. The monthly rise made up 22 per cent of the overall increase. Food inflation is now running at 7.7 per cent, its highest level since April 1984. This may be explained mostly by foot-and-mouth but, as the Irish Congress of Trade Unions and SIPTU pointed out yesterday, an investigation may be called for.
The merits of the Groceries Order, which bans below net invoice selling, may also need to be re-examined by the Tanaiste. Food price rises make up an extraordinary 32 per cent of the yearly inflation rate of 5.6 per cent.
The other problem, as Mr Hughes points out, is that price pressures are evident across an extremely wide range of goods and services.
Prices rose across a broad spectrum of services from motor insurance to childcare and as Mr Hughes notes it is not at all clear that the emerging slowdown in activity will dampen these price pressures.
There are other pressures on the horizon. There is no guarantee that food prices have reached a peak while the euro remains under considerable pressure, keeping up the prices of goods imported from outside the zone.
Oil prices have also failed to fall to the extent some commentators had predicted although they are off the highs of last year. There is some suggestion that OPEC may raise output in August. If this were to happen it would be good news, but again there are no guarantees.
Inflation for the rest of the year probably depends almost as much on publicans and grocers as it does on the future of the euro and oil prices. Government action can thus make a difference.
