Two unwelcome trends give cause for concern about the economic outlook. The rate of inflation has reached 5 per cent and is set to increase further. Meanwhile the euro is rising sharply on foreign exchange markets, moving above $1.6050 yesterday.
If sustained, the combined impact of these trends will take a heavy toll on competitiveness and thus on economic growth. There is nothing we can do about the currency markets. However an anti-inflation plan promised as part of the new national agreement must offer more than pious aspirations.
The Government should lead the way. The extent of the increases in indirect taxes on Budget day was ill-judged, adding too much to inflationary pressures. While it is probably too late to reverse any of these immediately, a clear commitment is needed by Government not to impose further indirect tax rises over the period of a new agreement and to stand ready to consider some reductions if inflation rises further - due, for example to higher oil prices.
The Government must also clamp down on further public sector cost increases - consumers already face an array of higher charges for everything from electricity to TV licences. One concern is that the cost of higher public service pay under the benchmarking arrangements will lead to further rises in charges for services over the next year, as various arms of Government raise money to pay higher wage costs.
This is why it is essential that the benchmarking increases are only paid in return for genuine and transparent increases in productivity. It is already most unsatisfactory that the research behind the benchmarking pay increases has not been published . This lack of transparency cannot now be compounded by unspecific agreements on what is to be offered in return. Clear targets for improved public services must form part of any deal. The final element of a new anti-inflation drive must be a commitment to increased competition. There are many parts of the economy - such as areas of professional services - where barriers to competition still exist. The Competition Authority is already examining some of these areas, but there is now a need to complete this work urgently and press ahead with the necessary reforms.
Meanwhile, as consumers, we all have a part to play. Many service providers pushed up prices during the euro changeover. With the prospect that pay increases may not match inflation in the months ahead, the advice to consumers who notice big price rises is clear: take your business elsewhere.