Saturday, September 30, 2000

Inflation Alarms Irish Central Bank

REUTERS

DUBLIN, Ireland -- Ireland's Central Bank warned on Thursday that inflation, currently more than double the euro zone average, must be tamed or the country risks jeopardizing its new-found economic success.

In its autumn bulletin, the bank said the government, facing clamor from unions for compensation for rising prices, needs to focus on restraining public spending and keeping a lid on wages.

It said measures should be introduced to improve competition to try to curb annual inflation that it forecast would average 5.5 percent this year and 4 percent in 2001, assuming no change in exchange rates and oil prices and a neutral budget.

"If inflation were to continue at an excessive level, the competitiveness of the Irish economy would be seriously impaired over time and the indigenous sector, in particular, would suffer," the monetary authority said.

"The attractiveness of Ireland as a location for foreign direct investment would also be diminished," it added. Ireland is in the middle of a six-year boom, driven partly by an influx of foreign investment attracted by relatively low taxes, the country's euro zone membership and its proximity to Europe and a low-cost, well-educated work force.

But the economy is hitting labor shortages, traffic and other infrastructure congestion and rampant house price inflation.

The bank said it expected gross domestic product to rise by a hefty 10.25 percent this year and by 8.75 percent in 2001 as supply constraints and labor shortages curb the potential for expansion.

That growth, along with soaring credit, wages and strong consumer demand, has boosted prices, fueling fears that the economy is on the verge of overheating.

The bank urged ministers to consider steps to curtail inflation, notably in the services sector, where prices are rising at 7 percent per annum.

It warned that the country's housing boom, with prices rising by at least 20 percent annually, was also contributing to what it called an inflation mentality.

"Of major concern is the possibility of inflationary expectations developing a momentum of their own," the bank said in the report.

The report noted however that the medium-term prospects for the economy were good if price stability could be established.

It said productivity growth remained strong in the traded sector, chiefly due to the presence of large foreign multinationals in Ireland.

http://www.moscowtimes.ru/30-Sep-2000/stories/story38.html

-- Carl Jenkins (Somewherepress@aol.com), September 30, 2000