Ireland to Overtake Finland on Prices

Ireland is about to overtake Finland and become the most expensive country in the 12-nation eurozone, a government report warned yesterday.

The soaring prices of cigarettes, alcohol and housing are fuelling a fast rising cost of living and threatening Ireland's economic competitiveness, according to the government research agency, Forfas.

A trip to the off-licence would be 60% cheaper in Spain according to the report, while rented accommodation in Portugal is just a fifth of that in Ireland.

Eggs, lettuce, oranges and even potatoes are among the most expensive in the eurozone. However, Ireland is a good place to buy black pepper, tea bags, bread and shoes.

The report, compiled using figures from accountants PricewaterhouseCoopers, concluded that "Ireland is now es timated to have become the second most expensive country in the eurozone in 2002 for consumer prices, marginally behind Finland. It is likely that Ireland will become the most expensive country in the eurozone during 2003."

The report blames the rapid expansion of the Irish economy. During the 1990s it earned the country the title of Celtic tiger but, although growth has since eased, inflation has not slowed as rapidly.

Ireland's inflation rate is now well above that of the eurozone average. Last year consumer prices in the eurozone rose by just over 2%, in Ireland the increase was 5%.

But with big economies like Germany teetering on the brink of recession Ireland cannot look to the European central bank to raise interest rates to help dampen Irish inflation.

The central bank of Ireland acknowledged yesterday that it had carried out work on what Ireland's interest rates would be if the country had not signed up for the single currency but a spokeswoman for the bank declined to say what conclusion had been reached.

Ireland's national competitiveness council warned of the economic fallout from rising inflation. "The high and growing differential in domestic services inflation between Ireland and the rest of the EU has already damaged the competitiveness of a range of manufacturing sectors in Ireland," it said, adding: "If this trend were to continue unemployment would quickly rise and the economy's medium-term growth potential would not be realised."