Political reaction Fine Gael and Labour blamed Government-imposed increases in service charges and VAT for making Ireland the most expensive country in Europe.
"The Government is now contributing between five and six times the share of the inflation figures compared to other governments," Fine Gael's finance spokesman, Mr Richard Bruton, said.
"Across the EU, the average Government contribution to inflation figures is 0.4 per cent. In Ireland, stealth taxes and increases in charges add more than 2 per cent."
Labour's finance spokeswoman, Ms Joan Burton, maintained that investment was already flowing away from Ireland towards more competitive economies. "The buck stops on Minister McCreevy's desk," she said, claiming reckless fiscal policies in the boom years had led to this situation.
Government spokesmen said, meanwhile, that the report's findings justified their concern about inflation and the need to prevent the erosion of competitiveness in Ireland. They pointed out that the Government already had an anti-inflation programme and was working through the social partnership process to ensure moderation in wage and price rises.
A spokesman for the Tánaiste, Ms Harney, said the report was disappointing. "But we have to remember we have one of the most successful economies in Europe," a fact that tends to fuel inflation. However, in the future, "if we are going to pay ourselves higher wages, we are going to have to be more productive."
Both the Tánaiste's spokesman and the spokesman for the Minister for Finance, Mr McCreevy, said that in relation to the recommendation that the Government set an inflation target, the target was always to have inflation "as low as possible".
The Government and all the social partners were committed to working together to address inflation, as recommended yesterday by the National Competitiveness Council.
As for the recommendation that there be no increases in customs and excise duties, VAT, education and health insurance costs, Mr McCreevy's spokesman said no Minister for Finance would ever say in May what he or she was going to do in the Budget at the end of the year.
But he repeated that the Government was committed to a low inflation regime.
A spokesman for Ms Harney said that in its recommendations to increase competition and allow foreign service providers into Ireland, the report was "singing the Tánaiste's tune".
Ms Harney was particularly keen on bringing foreign competition into the insurance sector and was "on record as saying that if there are rules and regulations denying choice to consumers they have to go".
In this regard she was examining the groceries order banning below-cost selling to see if this would drive down prices.
Meanwhile, the Minister for the Environment, Mr Cullen, was looking at the planning guidelines limiting the size of "superstores" to see if any change to them would stimulate competition that would keep prices down.
Mr Bruton said the private sector was being "hamstrung" by extra charges and that consumers are being made to pay increased prices.
He said: "If Government-driven increases were removed, Irish inflation would be below the EU average. These increases by the Government are undermining our competitiveness and are costing jobs."