ECONOMIST URGES PUBLIC SECTOR PAY FREEZE -
The latest figures from the Central Statistics Office show that inflation now stands at 5%. The figure is higher than the euro zone average and follows substantial increases over the last year in transport, housing water, electricity, health costs, food and drinks costs as well as education. More increases in prices and inflation on the way with no end in sight to the increase in oil, promised hikes from the ESB and as interest rates are on the rise.
Rossa White, chief economist at Davy Stockbrokers, says a number of factors is driving up inflation at the moment. Some of these factors are outside our control - oil and food prices. He says that if the ECB keeps interest rates high, the euro will stay strong and this should have some impact on keeping import prices contained. He points out that for the first time, food prices actually fell in Ireland last month. On a positive note, as jobless numbers grow and as spare capacity opens up in industry, it will become harder for Irish companies to rise prices over the next year. He says that we are going to get lucky on domestically generated inflation - which should slow over the next year.
Mr White says there is strong justification for a pay freeze in the public sector. As the labour market continues to weaken in the private sector, wages will be impacted. Certain areas of the inflation basket - health, education - are running away above the desired rate. He states that if there was not the same wage inflation coming through in those sectors, the increases could not be justified. He says a pay freeze was not considered from 2003-2007 when things were going well, but should be considered now.
The economist says the country can not afford to take any more impetus out of the economy, so it is important for the Government to meet its commitments under the National Development Plan. This is especially so given the struggles the construction industry is experiencing. He says that breaching the deficit limit - for even a year or two - by half a per cent or so is not a big deal and he adds it is crucial not to strangle the economy even further at this moment in time.
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MORNING BRIEFS - Drinks group C&C says revenue in the four months to June is down 8% compared to the same time last year. This includes a fall of 10% in its cider division and growth of 3% in its spirits and liqueurs unit. C&C warns its outlook is uncertain because of the the deteriorating economic backdrop in its main markets and continuing unsettled weather - bad weather hits cider consumption.
*** The heads of the US Federal Reserve and the US Treasury are trying to calm market fears about the financial health of America's two biggest mortgage firms, as shares in both Fannie Mae and Freddie Mac hit 17 year lows yesterday, on talk of a government bail-out.
The Fed's Ben Bernanke and Treasury's Henry Paulson have also called for new powers to protect the economy from crises such as the collapse of a Wall Street firm, telling Congress they needed to modernise the US regulatory system. They both say that the two top mortgage firms do have enough capital to survive, but investors are scared that the two mortgage firms could need a government bail-out. Both firms are raising funds to cover losses of over $11 dollars since the credit crisis began last year.
*** The credit crisis has also seen to a jump in foreclosure filings in the US - this June they were 53% higher than in June a year ago. According to real estate data firm Realty Trac foreclosures rose in 39 states, with the highest rates in Nevada, California, Arizona and Florida.
*** On the currency markets, the euro is trading at $1.5772 cents and 79.76 pence sterling.
