There is an urgent need to bring some rigorous management to the economy, according to IBEC’s Chief Economist, Mr David Croughan, at the launch of IBEC’s latest Quarterly Economic Review.
The high level of inflation currently running at twice the EU average was the result of excess demand and high expectations that had not been reigned in at the appropriate time.
Rapid growth rates over the last number of years had made life too easy and economic reality had gone out the door
"It was never possible to have high government spending, large tax give-aways and high wage increases without fuelling inflation," Mr Croughan said.
"The situation (has) been further exacerbated by oil price rises, a weak exchange rate and a euro zone monetary policy which was far too accommodating for Ireland’s current circumstances."
There is now a serious danger that Ireland has allowed inflation to embed itself in the economy to the detriment of our long term growth potential.
Government inflation is running at over 10 per cent and average service sector inflation is over 8 per cent with some of it running at 11 per cent.
"No-one clearly knows what the state of the finances are because the data up to May, which showed current spending running away with a growth rate of 27 per cent and revenue down 1 per cent, contained many anomalies which gave a distorted picture of the finances," he added.
"There was a need for a clear and transparent underlying picture of the finances on a monthly basis so that the stark reality of the situation is faced."
However, he said, there was evidence that the economy was moving out of the economic trough of the last quarter of 2001, but that recovery was relatively weak and still subject to considerable uncertainty.
He also said that the more disciplined approach to our economic management would allow us to take advantage of whatever recovery came through in the global economy.