Economics/Jim O'Leary: The latest data from the Central Statistics Office show that the rate of consumer price inflation continues to edge lower.
In February, the most recent month for which figures have been published, the annual rate was 1.7 per cent, down from 1.8 per cent in January and 1.9 per cent in December.
In the next few months the rate should fall to 1.2-1.3 per cent, not quite as low as I thought possible at the start of the year, but impressive enough nonetheless.
More to the point, the inflation rates likely to be announced at about the time the new round of pay talks are in full spate will be a far cry from the 5 per cent recorded at the beginning of last year when the last round was being concluded.
At that stage, wage rises amounting to a cumulative 7.2 per cent for the following 18 months were agreed under Sustaining Progress.
That 7.2 per cent now looks like being worth about 4.5 per cent in real terms, a generous figure considering the economic background.
One way of reading this is that, last time around, the employers' organisations had a very poor game and allowed the wage agreement to be unduly influenced by the then prevailing inflation rate.
If one could rely on the principle of symmetry operating, that might be no reason to sack the coach: this time around, the pendulum would simply swing the other way and a wage agreement pitched in very low single digits would result. But, of course, the principle of symmetry will be stoutly resisted in some quarters and there is no guarantee that it will win out.
Not everyone is impressed by a lower inflation rate, however. Indeed, not everyone, it seems, understands what lower inflation means.
Take ICTU for example. Its response to the March (sic) inflation figures featured the following rather ham-fisted attempt to damn the improving trend with faint praise. "This slight fall [sic\] in prices will, in a very small way, help in reducing the high level of Irish prices," ICTU said.
Incidentally, its response to the previous month's Consumer Price Index (CPI) report made a similarly erroneous observation in welcoming "the steady fall in prices over the past 11 months". Well, let's break it to them gently: prices have not been falling; it's the rate at which they're rising that has been falling.
You might think an organisation that believed, however incorrectly, that the general level of prices was falling, and that had welcomed this imagined development, might see little reason to complain. But not a bit of it.
It seems the rate at which ICTU imagines the general level of prices to be falling is not fast enough for its liking! This view draws its inspiration from research conducted by the Central Bank that found the Irish price level was significantly above the EU average. Thus ICTU's response to the latest inflation figures thunders: "Irish price levels are now a substantial 14 per cent higher than average prices in Europe. Ireland is the fourth-dearest country in the EU. Irish workers have to pay more for both goods and services than workers in other countries."
How these observations might be used to obtain leverage in the pay negotiations is unclear. Perhaps the inference we are being invited to draw here is that Irish wages should be 14 per cent above the EU average, or that Irish wages should be the fourth highest in the EU or, in other words, that real wages in Ireland should be set at European levels.
One way of assessing propositions like these is to consider what their implications might be. Take manufacturing, for example. According to the US Bureau of Labour Statistics, average hourly compensation costs for manufacturing production workers in Ireland were running at the equivalent of $15.09 (€12.25) in 2002, compared with a European average of $20.18. Assuming that not a lot has happened to the relative position since 2002, this would mean that bringing the Irish figure up to a level 14 per cent above the European average would require a 50 per cent wage increase in nominal terms.
It's hardly necessary to spell out what the consequences of this would be. The attainment of real wage levels close to the EU average may be a perfectly reasonable medium- to long-term aspiration, provided it is acknowledged that it would require a big increase in productivity. But the notion that, given current productivity levels, real wages in Ireland should be raised to average EU levels is a recipe for national economic suicide.
Another point that ICTU has been majoring on is the big increases that have occurred in the prices of certain goods and services over the past year. The statement in response to the latest inflation figures, already quoted, notes the 25.4 per cent rise in the Water, Refuse and Miscellaneous Services component of the CPI, described as a "soaring stealth tax", and the 14 per cent increase in electricity prices. In the same vein, the increases in indirect taxes imposed by Government rate unfavourable mention. Again, whether and in what way it is intended to use these observations to achieve leverage in the pay talks is unclear.
Could it be that ICTU regards the increases in these items as phenomena independent of the overall rise in the CPI? Well let's make the position clear: these increases are already counted in the 1.7 per cent inflation rate. Of course, if electricity prices had not risen by 14 per cent and the prices of water and refuse services had not risen by 25 per cent-plus, the overall inflation rate would be lower. Even more so, if the Government had not raised indirect taxes in the last two budgets, the overall price level would be so much lower.
And why were indirect taxes raised? It wouldn't have anything to do with the need to defray the costs of the benchmarking awards to ICTU's public sector members, would it?
