The recent IMF report on the Irish economy received very different interpretations in Ireland and abroad. The reporting of the IMF's assessment of Irish economic prospects in the overseas press emphasised its warnings regarding inflation and overheating.

By contrast, the report was greeted with almost unanimous approval from domestic economists and politicians alike, who interpreted the report as an unequivocal endorsement of Ireland's recent economic performance. Economic reports drawn up by supranational bodies such as the IMF tend to rely heavily on inputs from the respective official domestic economic agencies. In this case the IMF report would have relied heavily on discussions with the Central Bank, Department of Finance and the Economic and Social Research Institute.

Nevertheless, the IMF will generally make its own assessment, although this will often be couched in a way that pays homage to domestic political sensibilities.

It does seem that the contents of the report are being used selectively by different parties. Over the past 12-18 months, views regarding the sustainability of the Irish economic boom have polarised into two camps.

Many overseas commentators have become sceptical about the ability of the Irish economy to continue growing at breakneck speed. A view has taken hold that it is only a matter of time before rising inflation and infrastructural bottlenecks will choke off economic growth. The housing market is being viewed as a particular danger spot that could eventually create economic dislocation.

The alternative view espoused by the majority of domestic commentators is that the current growth rate of around 10 per cent can gradually slow down to a sustained long-run rate of around 5 per cent.

Furthermore, domestic analysts' assessment is that a massive investment programme is capable of eventually solving current bottlenecks, and that a more enlightened immigration policy will relieve labour shortages.

The current key focus of debate among these opposing camps is the rapidly accelerating Irish inflation rate. In this instance it has to be said that it increasingly seems as if the overseas commentators will win this particular round.

As inflation began to accelerate earlier this year, domestic economists and politicians were virtually unanimous in reassuring the public that this would be a temporary blip that would be quickly reversed. Already, the inflation rate has risen to around 6 per cent, much higher than even the more pessimistic forecasts. Despite this, the Government is still relying on the forecasts of domestic economists that are predicting an early return to an inflation rate of around 3 per cent.

Two external factors have served to push up our inflation rate. The first is the falling value of the euro and the second is the rising oil price. Because Ireland is such an open economy, the inflationary impact of these external pressures are much greater than for large economies.

The euro continues to weaken and oil prices show little sign of falling sharply. Therefore, an early reduction in inflationary pressures from these sources seems unlikely.

Domestically generated price inflation, particularly in services, seems set to accelerate given the tightness of the labour market and the strength of consumer demand.

Investors in the equity market should remain sceptical about forecasts of falling inflation.

The key impact of above average domestic inflation rate will be to put upward pressure on the cost base of those companies whose operations are mainly located in Ireland. Companies in the financial sector and many smaller companies are exposed to rising cost pressures to a greater extent than those Irish companies with production facilities spread across several international locations.

It could well be that rising Irish inflationary expectations are a key factor in explaining the under-performance of these sectors in the past year.