Rising inflation has been the subject of concern recently in Ireland, and has now also attracted the attention of the EU who warned last week that Irish Government's planned tax cuts will overheat the Irish economy.
Statistics published last week showed Irish economic growth was 7.8% in the second quarter of 1999 and that inflation had reach a 10-year high of 4% in January 2000. Ireland also has the highest inflation in Europe and some economists are now predicting that inflation should peak as high as 4.5% within the next few months.
The annoucement could not have been timed worse for the Irish Government who are currently in the middle of tough negotiations with unions and interest groups to draft a new national wages accord.
"There is some cause for concern," Bank of Ireland chief economist Jim Power told an Irish newspaper last week. "This exposes the dangers that the Irish economy is facing at present. The risk is that we start to get an upward wage spiral. Wage inflation damages competitiveness, and certainly multinational companies and indeed domestic companies will have to think a little harder before taking on new business here."
Commenting on the situation in a speech to the Institute of European Affairs, EU Economic Affairs Commissioner Pedro Solbes warned that the Irish economy is overheating and planned tax cuts by the Government will only make the situation worse. Of course, one of the ironies of Mr Solbes comments is that one of the causes of Irish inflation is the sinking value of the Euro, which now looks set to suffer even further devaluation as a result of expected US interest rate rises in the next few months.
Despite what the Statistics Office and the EU say, the Irish Government says it is not reaching for the panic button at this stage and that the currrent concerns will be a distant memory by this time next year.
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