By Andrew Bushe
DUBLIN — Irish inflation will rise in the next few months but will then moderate to an average of 3 percent for the year, according to Finance Minister Charlie McCreevy.
The minister also predicts the Celtic Tiger economic boom is set to continue with growth rates higher than the rest of Europe.
"Certainly over the next four or five years, if we don’t lose the run of ourselves, we are going to enjoy a level of prosperity that we once would only have dreamt about," he said.
Inflation reached an annual 4 percent in January, the highest rate for a decade and there has been concern about the economy over-heating.
House prices are still rising at 22 percent in the Dublin area — back from a peak of 37 percent — and labour shortages are hitting industry with unemployment below 5 percent.
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McCreevy said that in the coming months he expected inflation to "peak a little bit" and then come back to an average of about 3 percent for 2000 and the average over the next two years will be about 2 percent.
"But I do not think it is anything to be alarmed about," he said.
The Minister said most of the reasons for the increase in inflation were outside his control and these factors could change the inflation and economic outlook.
"The rate of the euro vis-a-vis the dollar and sterling have contributed to imported inflation plus the increase in oil.
"Also the increase of 50 pence on cigarettes that I put on in the budget will contribute about 0.7 percent to the consumer price index."
McCreevy said he could not use economic tools like currency changes or raising interest rates to combat inflation as the economy is subject to monetary policy set by the European Central Bank as a result of membership of the EMU.
The biggest tax giveaways in Irish history that McCreevy announced in his December budget will kick in to workers’ pay packets when the new tax year begins on 6 April.
On March 13, the 500,000 trade union membership will vote on a new national partnership pay deal, the Programme for Prosperity and Fairness, which will give about 15.75 percent in pay rises and 10 percent in tax cuts over 33 months.
The minister said the economy was well able to bear the cost of the new deal as what happened domestically had some effect on inflation "but to a lesser degree than determinants from the outside."
"One certain way of setting off a train of inflation would be to have a (wages) free for all," he said.
He dismissed reports that his relationship with Taoiseach Bertie Ahern had been strained in recent months following criticism of budget measures.
"My relationship with Bertie Ahern has always been very, very good. Bertie Ahern is somebody you would find it terribly difficult to fall out with. I don’t find it too difficult to fall out with people at all, but it is nearly impossible to fall out with Bertie.
"Some people have been trying in recent times to stir it up between us but there’s absolutely no truth in any of that speculation," he said.