Finance Minister Brian Cowen has blamed the private sector for spiralling public sector pay increases.
He was reacting to a statement from ISME yesterday, which said that in order to lower inflation, a dramatic overhaul of public sector costs is needed.
'The public sector pay agreement that we're finalising with public service unions is a reflection of what's been agreed in the private sector,' the Minister said.
'So I'd remind ISME that it was the private sector who decided on an agreement of 10% over 27 months, which obviously has had a follow-on effect in the public sector,' he added.
ISME said the loss of competitiveness for Irish-owned business is at a critical stage with threats of rising domestic costs, the strengthening euro and volatile energy prices.
'It's very much a question of having a prudent management of the economy. We are growing at 4.8%. I'd remind ISME that's 2.5 times what any other small businessman in Europe can achieve,' Mr Cowen said.
The Minister added that a fast-growing, full-employment economy naturally brings about inflationary trends.
Figures from the CSO yesterday showed inflation, at 3.9%, is at its highest level for three years. Minister Cowen said he believed this would moderate by the end of the year. He also said he thought yesterday's rate rise by the ECB was not a major challenge in terms of the growth potential of the economy.
The Minister said that the inflation increase last month was mainly caused by external developments, especially rising oil prices. He said that if the oil factor as well as the mortgage interest rate rises were left out, the country would be looking at an inflation rate of 2.5%.
