“It is clear that Ireland’s rapid rise toward the top of the European pricing league could pose a significant threat to maintaining the economic successes of recent years,” Martin Cronin, the Forfas chief executive, said last week.
The Forfas agency, which reports benchmark prices in Ireland with other European countries, found consumer price increases over the last five years had sharply outpaced European competitors.
“This has resulted in an estimated overall consumer price level which is 12 percent above the Euro area average,” Cronin said. “The strong inflation differential has continued into 2003, resulting in a further divergence in consumer price levels, adding to already high competitiveness risks.
“Ireland is now estimated to have been the second most expensive country in the eurozone in 2002 for consumer prices, marginally behind Finland. It is likely that Ireland will become the most expensive country in the eurozone during 2003.”
The report will fuel a debate about whether the cap on the size of major superstores should be lifted to combat rising prices.
The study found that soaring prices for domestic services were the main factor driving up inflation. It also shows another important driver of inflation is price increases in goods and services which are subject to some level of direct government influence, such as taxes, state service charges or prices rise in the state sector.
In individual spending categories, pubs and restaurants were the most important driver of inflation, accounting for nearly 30 percent of the increase in the year to last January.
Combined with alcoholic beverages and tobacco (19 percent), transport (16), and miscellaneous goods and services (15), these non-internationally traded sectors accounted for 80 percent of inflation last year.
Ireland was the second most expensive eurozone country in which to buy non-food items across all retail types last year.
It was the most expensive euro-zone country for food from low-priced outlets last year, the second most expensive for food from mid-priced outlets and the third most expensive for food from high priced outlets.
Accompanying the Forfas report, the National Competitiveness Council issued a statement calling on the government to avoid increases in indirect taxes and charges for services like education and health insurance.
Higher government-related charges accounted for 59 percent of inflation last year.
“Reducing inflation and improving Ireland’s international cost competitiveness should become the immediate economic priority for the Irish government and social partners,” said NCC chairman William Burgess. “The continuing overshoot in consumer price levels and inflation is seriously hampering efforts to improve competitiveness.
“It is vital that swift action is taken to resolve this inflation problem which is made even more critical by the weak global economic environment and the recent strong appreciation of the euro against sterling and the dollar. Further cost escalation and pressure on competitiveness will put at risk employment and growth in many internationally trading sectors and will, if left unchecked, adversely affect the economic well-being of the country.”