It said that Ireland must set an inflation target of 2% and that it should be achieved at any possible means, including setting wage increases at this rate.

In a 10-point action plan to ease inflation presented to the Government yesterday, IBEC director of economic affairs Brian Geoghan said that implementation of the benchmarking agreement should be held back until the social partners back measures to bring down inflation.

Mr Geoghan said high wage rates and excessive growth in current spending was at the root of the problem, giving Ireland inflation twice that of the European average.

He said high inflation was becoming embedded in the economy and the risk was that it would persist even as the euro strengthened against sterling and the dollar. Competitiveness was already being damaged and further jobs would be lost unless remedial action was taken, he added. IBEC has called for inflation to be pegged at the European Central Bank target of 2% and this target must be seen as

real and it must be very clearly understood that this is the reference rate for pay bargaining, otherwise that exercise would be defeated before it got underway. It also believed that increases in excise duties on tobacco products should be excluded from the consumer price index (used as reference for pay negotiation purposes).

IBEC also wants the Competition Authority and the Director of Consumer Affairs to be given some specific additional priorities and tasks to boost the counter-inflationary policy, such as more aggressive implementation of competition policy.

“IBEC believes that this counter-inflationary policy must be given top political commitment and identified as a specific responsibility of the Competition Authority in co-operation with the Director of Consumer Affairs over a period of, perhaps, two years to drive its implementation. “Inflation is bad for every sector of society including consumers, business and the Government. It is absolutely essential that we get to grips with inflation immediately given the disparity with the eurozone. Pay is not the only contributor to higher inflation, but if we can restore the ethos of moderate pay combined with low inflation and low taxes, then we have an excellent opportunity to stop the insidious and damaging trend that is in evidence over the past few years. To continue to chase inflation with high and uncompetitive wages increases will only fuel the problem and make us all worse off in the long run.