For the second month in succession, the rate of consumer price inflation remains at 5.1 per cent. This statistic for April is probably the last major signal the economy will send before polling day.
When the present Fianna Fáil-Progressive Democrats coalition took power 10 years ago, consumer price inflation was just 1.5 per cent. At over three times that rate, the latest figure is a fair indication of the price paid for the high rates of economic growth enjoyed during its tenure.
From high growth and low inflation, the FF/PD Coalition has created an economy with high growth and high inflation. In answering the charge that the Government was responsible, finance minister Brian Cowen pointed out on Wednesday that high as they might be, inflation rates in Ireland have been accompanied by unemployment levels that are among the lowest in Europe. Partly because of the policies followed, and partly due to the shortness of its duration, there can be no denying that this jobs-related achievement is one that eluded the rainbow government.
If high inflation was an inevitable price, then Mr Cowen's point might excuse the Government of blame. It was not and does not. As the rainbow coalition reduced unemployment from 14 per cent to 10 per cent in its three year term, inflation actually fell. During its tenure the present Government has reduced unemployment from 10 per cent to 4 per cent, but over a longer period of time. As it did so, the economy underwent two serious bouts of high inflation, both occurring close to election periods. Between 2000 and 2002, inflation averaged 5 per cent. As the Government now seeks re-election, annual inflation has jumped from 2.5 per cent in 2005 to 4 per cent last year and it threatens to reach 5 per cent this year.
Some qualification is needed, of course. Where the rainbow government merely prepared for it, the present administration has experienced the full effects of the Economic and Monetary Union project begun in 1999. One of these effects is that Irish interest rates have been significantly lower than at any time in the past, stimulating the economy in ways never seen before. But it was for reasons such as these that the Stability Pact was created, so that such monetary stimulus would be countered by domestic prudence. Instead, low interest rates have been accompanied by rampant public spending growth, property market dysfunction and easy credit policies.
In an ironic coincidence, the European Central Bank Governing Council chose to hold its May policy meeting in Dublin on Thursday. Speaking afterwards, ECB president Jean Claude Trichet was too polite to criticise Irish economic policy. But when it was put to him that Irish public spending has grown by 25 per cent in two years, he appeared perturbed. Neither could he comment on the fact that credit growth was allowed to expand by more than 50 per cent in that same period. High inflation, falling competitiveness and growing vulnerability on the jobs front are the result of those mistakes.