Michael Casey, Assistant Director General at the Central Bank
The Central Bank has criticised the budget for the inappropriate way it added to Ireland's inflationary pressure. The Bank's quarterly economic bulletin, published today, expresses serious concern about the country's economic inflation, which is now twice the European average. The bulletin predicts that inflation next year could average between 3.5% and 4%. The Bank says the task facing economic policymakers was to manage and facilitate a gradual slowdown in demand to control inflationary pressures. It has warned that such pressures, if left unchecked, could undermine our prospects in the medium term.
The bank pointed out that Ireland's inflation rate was now more than twice the European average and is the highest in the Eurozone. The bank added that the authorities and social partners now have the task of dealing with the problems of success such as the current pressures in the Labour market. It said interest rates in Ireland were generally too low for an economy where inflation is so high. The bank said that the budget has provided an expansionary stimulus to the economy at an inappropriate time.
The bank warned that the decisions taken in relation to public spending and taxation tend to become permanent commitments that cannot easily be reversed. It said this leaves the economy more exposed in the future to adverse economic shocks. The Bank said the expansionary effect of the budget needs to be eased by an appropriate evolution of wages and salaries which takes into account the tax cuts which were announced on budget day.
