The European Central Bank has warned about inflationary pressures in the Irish economy and has hinted of further interest rate increases in the months ahead.
As new figures showed euro zone inflation reached 2 per cent in February from 1.9 per cent in January the president of the ECB, Mr Wim Duisenberg, told the European Parliament that the euro's slump and high oil prices will mean further upward pressure on prices.
Irish inflation reached 4.3 per cent in February, while on an EU-harmonised basis Irish inflation was running at 4.6 per cent, according to figures released last week. French inflation was 1.5 per cent but seven countries reported rates above the ECB's 2 per cent ceiling.
Replying to a question from British Tory MEP Ms Theresa Villiers, Mr Duisenberg admitted this was worrisome.
Following a speech to the parliament's monetary affairs committee, Mr Duisenberg said "the fact is that Italy, Spain and Ireland have inflation considerably larger than the rest and this causes the ECB some concern".
Talking to RTE television after the meeting, he said the 15 per cent pay rise which Irish unions and employers are voting on this week "sounds pretty high".
He pointed out that inflation rates differed across the euro zone but said that in Ireland it was up to the Government and the social partners to do something about it.
"There is nothing more monetary policy can do," he said, indicating he believes the onus is on policy-makers here to tackle the inflationary threat.
These warnings follow similar concerns expressed by the European Commission over recent weeks.
In his speech, Mr Duisenberg also warned that there were signs that an information technology boom may be appearing in Ireland.
"I don't know whether there is a bubble in technology stock prices and if I knew it I wouldn't say it. There are signals of this information technology (boom) penetrating into the economy here and there in Europe.
"In Finland, it's certainly the case; in Ireland, it's certainly the case, and I believe that in the Netherlands it's certainly the case - but it will take a little longer to penetrate society and turn society upside down like in the United States," he said.
According to Mr Jim Power, chief economist at Bank of Ireland, Mr Duisenberg was trying to send a message of clear concern about Irish inflation. "There is a clear implication that he is telling the Government here not to cut taxes any further," Mr Power said.
He added that interest rates over the coming months are certainly on the way up. According to Mr Duisenberg, the European economic outlook has brightened further while the risk of inflation has increased.
The ECB is now predicting average growth to be just above 3 per cent in 2000 and 2001. But it is also estimating that inflation in the future will remain close to 2 per cent and could exceed it before dropping back.
Mr Duisenberg said higher oil prices and the euro's slump on foreign exchange markets could push up inflation by 0.3 to 0.4 percentage points.
That is likely to mean future interest-rate hikes to ensure it does not go above this level. The ECB's previous forecast was for average inflation of 1.5 per cent.
The ECB sees continuing pressure being exerted through the increase in oil prices, which has been higher and more lasting than it had anticipated. However, no rise is imminent and for the moment, Mr Duisenberg said, current rates were appropriate for the euro zone.