This week will see yet more bad news for the Government in terms of continuing rising prices.
Estimates vary widely for the likely rate in July when the inflation figures are published tomorrow , but all believe that the trend will be upwards. According to Dr Dan McLaughlin, chief economist at ABN Amro, prices are likely to rise by 5.7 per cent or 5.8 per cent year on year in July. But according to Mr Jim Power, chief economist at Bank of Ireland, the consumer price index will rise by as much as 6.2 per cent.
Whatever the rise in the index is, it will put further pressure on the Government. The latest talks with the social partners have bought some time. But the measures that were announced are unlikely to have much impact on curbing inflation.
The price controls on alcohol which were introduced earlier this summer have already encountered difficulties. Many publicans claim they no records of the prices they charged in May. A shortage of inspectors within the office of the Director of Consumer Affairs also makes policing the order very difficult. It is of course extremely unlikely that the Government will now issue more pub licences having failed to do so as part of the recent Intoxicating Liquor Bill.
However, this month much attention will be focused on the food component of the index. It has been rising quite rapidly - 2.1 per cent over the last three months - and because it comprises a significant proportion of the overall index, every small rise has a large impact. The employers' body IBEC and RGDATA, the retailers' organisation, will be hoping that food prices fell off last month. If they have not, it could provide the Tanaiste Ms Harney with the excuse she needs to abolish the Groceries Order which bans below net invoice selling.
"It is simply a means of protecting producers rather than consumers and prices would fall if it were abolished," Dr McLaughlin said.
Services inflation has also been rising rapidly. Much of this is comprises higher hairdressers charges, but a large proportion is also administered prices in the public sector, particularly in education, training and hospital charges. The Government has of course announced a halt to any price rises in the public sector and the figures in the next few months will be examined closely to see to what extent this is working.
Dr McLaughlin added that the other big factor in the July figures will the extent of the summer sales. Anecdotally, large reductions were seen in clothing and footwear in particular. But of course all will depend on how large these reductions were compared with July 1999.
Falling petrol prices are likely to push the index back down according to Dr McLaughlin, but Mr Power argues that the full effect will not be felt, because many garages had not cut their prices on the day the Central Statistics Office did the pricing. That is one of the main differences between the large variation in forecasts between the two economists.
Certainly, petrol prices were rising quite rapidly last year and so even a period of stable prices now would exert downward influence on the index. Rising mortgage rates will of course also have a large impact. But, overall, according to Dr McLaughlin inflation is a social and political problem and is not an economic problem in a competitive sense at all.
He pointed out that productivity is still rising so rapidly that unit labour cost are falling here and to a much greater extent than the US. Any erosion of competitiveness because of rising prices is thus still a very long way off he added.