OLDEST IRISH AMERICAN NEWSPAPER IN USA, ESTABLISHED IN 1928
Category: Archive

Central Bank boss warns of inflation ‘consequences’

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — The strongest warning yet has been given by Central Bank boss Maurice O’Connell about increasing inflation and the continuing spiral in house prices and personal credit.

The bank governor spoke of his "unhappiness" and "unease" at the release of its 1999 report, which outlined the signs of inflationary pressures that are hitting the booming economy.

The Bank estimated the real increase on GNP growth last year as 8.25 percent and said the inflation rate was more than 2.5 percent higher than the other euro zone countries.

"While it may be reasonable to expect some differential in inflation at this time above the European average, in view of our economic conditions, any such differential has obvious limits," he said. "Services inflation, which is much more susceptible to domestic inflationary pressure than consumer price inflation generally, has been rising steadily through 1999. Underlying services inflation is registering increases of more than 6 percent."

In the latest issue of Finance, the monthly publication for the financial services market, a panel of leading private sector economists predict housing price increases of 60 percent over the next five years — a prediction that may turn out to be conservative.

Never miss an issue of The Irish Echo

Subscribe to one of our great value packages.

O’Connell said the housing price spiral carried the "risk of unwelcome social, as well as economic, consequences," and increases of 60 percent would be "very disappointing."

Said O’Connell: "There is nothing that we can do beyond putting pressure on the credit institutions to observe good standards in terms of lending. We cannot impose any special conditions, we cannot tell them who to lend money to."

O’Connell said private-sector credit is growing at nearly 30 percent year on year as people borrowed more and more.

"That in a modern economy, to my knowledge, is unprecedented," he said. "I say that that can’t continue."

The general euro rate credit growth is about 10 percent.

O’Connell also warned trade unions that the new pay deal, with pay rises of 5.5 percent per year for the next two years and 4.5 in the third year should be "the norm and not the base line" for future settlements.

Other Articles You Might Like

Sign up to our Daily Newsletter

Click to access the login or register cheese