Inflation in the Republic does not cause "any particular concern" to Moody's credit rating agency, one of its most senior analysts said yesterday.

But rising prices in the long term could create an embedded wage-price spiral, damaging the economy's capacity to grow, he added.

Foreign investors would find Irish projects less attractive in this scenario, said the managing director of the agency's sovereign risk unit, Mr David Levey. "We don't have any negative outlook, which doesn't mean we don't have any long-term concern."

The Republic's high inflation was tempered by strong GDP growth, which may reach 10 per cent this year. A high rate of price rises would be more significant if aligned with low GDP growth, he said.

For the moment, Mr Levey was confident the Government would retain its Aaa rating for sovereign debt, the highest possible.

Of the economic boom, he said: "The success which people thought initially might be partial and temporary has become well embedded."

This was because rates of educational attainment were rising along with employment, the size of the labour force and a high use of technology. When asked whether certain London-based economists who warn of a sudden turnaround could be correct, Mr Levey said: "What people are concerned with over in London is pressure on asset prices. They see what they think is an asset bubble and compare Ireland with Japan in the 1980s. We don't think that's an appropriate comparison."

Based in New York, Mr Levey was in Dublin to introduce Moody's first Europe-based sovereign analyst to civil servants. Mr Alexander Kockerbeck will track the Government's performance from Frankfurt.

Mr Levey acknowledged the Government faced difficult questions on taxation, but said it was not his role to advise on policy.

Of the euro, which hit new lows against the dollar this week, he agreed its weakness would persist while strong growth continued in the US. "In Europe you don't see the same extreme dynamism you have in the US or in Ireland."

The Republic was unusual among euro members in that it had strong trading links with the US and Britain, whose good performance fed into domestic growth.

Other euro zone states generated weaker growth due to structural constraints - this was reflected in the dollar-euro exchange rate.

But Mr Levey added: "Just as the dollar has been, once again, the king of the hill, it won't last forever."

Unbroken growth for several years in the US would eventually lead to diminishing returns from investment, although this had not yet happened because improvements in technology fed into increased productivity and, in turn, further growth. "So the real question is how long can this dynamic technology growth continue."

With this in mind, the fundamental question for policy-makers was to engineer a soft landing and avoid a crash in the US.