Inflation jumped to 6.8 per cent in October and is expected to peak at 7 per cent this month. The new figure released yesterday surprised most forecasters and many have now revised their inflation estimate for the full year to 5.5 per cent. The Taoiseach, Mr Ahern, said last night the "Government would focus on an appropriate response" to inflation in the coming Budget amidst angry reaction from trade union leaders and strong criticism from Opposition politicians.
The Government has invited both sides to talks as the prospect looms of collapse of the Programme for Prosperity and Fairness.
An out-turn of 5.5 per cent would cancel out the pay increases agreed for this year by the Government and the social partners under the Partnership for Prosperity and Fairness. The main components of last month's jump were housing, fuel and transport costs. The price of home heating oil rose by 13.4 per cent in October and has risen by 61 per cent since last October. Mortgage interest costs were up by 3 per cent last month and 48.3 per cent over the year. Transport costs, of which motor fuels are a major component, were up 1.1 per cent in October and 8.1 per cent year on year.
If the Minister for Finance does not take action to cut inflation in the Budget, the inflation outlook for 2001 is bleak as the current high levels will feed through to next year, according to Dr Dan McLaughlin, economist with ABN Amro in Dublin.
"There is a real prospect of Mr McCreevy taking action on excise duty or VAT to give himself a lower base going into 2001," he said.
The Government's failure to deal with inflation amounted "almost to criminal negligence", the Fine Gael spokesman on finance, Mr Michael Noonan, said yesterday. "Inflation is the greatest threat to our prosperity and this appalling, incompetent Government continues to stand by and allow inflation to rip through the economy," Mr Noonan stated.
The social welfare increases announced in the last Budget, which were at 5 per cent on average, had been completely eroded. It was a frightful indictment of this Government that despite the booming economy most people would end up the year worse off than when it began, he said.
The Government had to introduce a Budget which focused on low and middle-income earners. Persons on the minimum wage should be taken out of the tax net completely by increasing personal and PAYE allowances and the standard rate band should be extended. The Labour spokesman, Mr Derek McDowell, said the rise in the inflation rate for October was as he had anticipated. It meant further extreme hardship for those on low and fixed incomes.
"It now seems inevitable that inflation will hit 7 per cent by the end of the year. With this in mind, the decisions currently being made in the run-up to the Budget must address both the causes of inflation and those most adversely affected by the growing rate," he stated.
He added that the Government's absolute mismanagement of both the housing and childcare crises were continuing to fuel inflation, and these were clearly areas requiring some radical budgetary measures in December.
Euro zone inflation will slip to 2.7 per cent from 2.8 per cent year-on-year when October figures are published next week, according to a Reuters poll of 22 forecasters. September's figure was the highest since the euro's introduction last year and marked the fourth month running that inflation breached the European Central Bank's 2 per cent medium-term ceiling.
