The overall finding of the latest survey from the National Competitiveness Council that Ireland is one of the most expensive countries in the euro zone comes as little surprise. Its analysis suggests that only Finland is more expensive - marginally - and that consumer prices here are considerably above most of the rest of the EU.
Also of concern is that business costs in the Republic are relatively high and in many cases have increased substantially faster than the rest of the euro zone in recent years.
The council concludes the gap between prices here and elsewhere in Europe is not justified by economic fundamentals. At a basic level, Ireland's rise up the price rankings is due to inflation here being higher than elsewhere in the EU for a prolonged period. Fluctuations in the value of the euro have contributed to this. However it also stems from "high domestically-generated prices", particularly in parts of the services sector. Not surprisingly, the council concludes this has damaging implications for our competitiveness.
The warning is timely. There was an intense focus on competitiveness issues as economic growth slowed following the boom period. Subsequently inflation has fallen significantly, dropping below the EU average for a period before edging back above it in recent months. As the economy recovers, the danger is that inflation again starts to accelerate. The cost of this would not be seen immediately, but would be reflected over the long run in lower growth and employment.
Some particular trends are of concern. One is the sharp cost increase in restaurants and pubs, an area with significant implications for the tourist sector. Another is the substantial contribution of Government decisions through measures such as higher excise duties and rising charges in a range of areas. And the third is costs which specifically hit the business sector, such as the price of office space, liability insurance and the cost of electricity for industrial users. Reflecting the higher inflation rate, pay costs here have also increased substantially in recent years.
Given the fall in the inflation rate over the past year, the focus of policymakers on the issue appears to have diminished. This should be rectified, particularly given the high level prices have reached. Policy needs to focus on two specific areas. First, in terms of the Budget, it is vital that increases do not contribute unduly to inflationary pressures either directly or indirectly. Holding down inflation remains a key economic priority. Second, the Government must renew its efforts to promote competition across the economy, particularly in parts of the services sector. The reforms of the insurance market show that results are possible.
The Government must take a lead in this area. A group set up under the Sustaining Progress partnership to target inflation appears to have run into the sand. It should be revived and its focus widened to look at costs to business as well as prices for consumers.