By Andrew Bushe
DUBLIN — While inflation fell to 5.3 percent in June — the second consecutive monthly fall after three months of increasing prices — Ireland’s main economic think-tank has again warned about overheating and the need to curb rising prices.
The Economic and Social Research Institute (ESRI), in its latest quarterly commentary, said the Celtic Tiger continued to show robust growth in the first half of the year but it was slowing down.
"While there are signs that the economy is reaching an inevitable deceleration in its remarkable growth performance, the rates of output growth forecast for this year and next are still in excess of those that could be considered sustainable in the medium term."
The institute forecast real GDP growth of 7 percent this year and a further drop to 6.4 percent next year.
"While output growth is slowing from the exceptionally high levels of 2000, considerable demand pressures remain. These have been boosted by the continued weakness in the euro, low real interest rates, high domestic after-tax income rises, and large public expenditure increases.
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"Inflation in consumer prices, while not the most appropriate measure of overheating pressures for a small open economy like Ireland, has nonetheless remained high.
"The headline inflation rate is expected to average 4.8 percent in 2001 before moderating to an average of 3.3 percent in 2002.
"A further indicator of excess demand pressures in the economy is the reemergence of a deficit in the current account of the Balance of Payments in 2000 after eight years of surpluses. This deficit is forecast to rise in 2001 and 2002 to 1.1 and 2 percent of GDP, respectively."
While the government welcomed the drop in the inflation rate from 5.4 percent in May, Fine Gael deputy leader and spokesman on finance Jim Mitchell described it as "stubbornly high."
"It is no coincidence that, arising from the gap between Ireland’s inflation and that of our trading partners, redundancy numbers are climbing steadily," he said. "A major contributory factor to these redundancies is the loss of competitiveness arising from the government’s inflationary policies."
Consumer prices increased by 0.5 percent during the month, compared to a 0.6 percent increase in June 2000.
After reaching a peak of 7 percent last November, Irish inflation fell back to 5.2 percent in January. It then began to increase again before peaking at 5.6 percent in April.
The November high was the country’s worst inflation figure since August 1984. Inflation had previously bottomed out at 1.2 percent in July 1999.
The CSO said the harmonized index of consumer prices, used for comparisons with other EU states, rose by 0.7 percent in June, to an annual rate of 4.3 percent.
The main factors that pushed up prices in June were increases in transportation, food, fuel and light and services.