asked the Minister for Finance if the drop in value of the punt against sterling will add to our inflation during 1979 and if any estimate has been made.

22.

asked the Minister for Finance the increase in the cost of living consequent on the break with sterling.

I propose, with the permission of the Ceann Comhairle, to take Questions Nos. 21 and 22 together.

It is not possible at present to say what effect, if any, variations in the exchange rate between the Irish pound and the pound sterling will have on our rate of inflation in 1979. The impact of such variations on prices will depend on their magnitude, their duration, and the extent to which the prices of British-produced goods and services can be passed on here in the face of competition from Irish and other sources.

The external contribution to prices here reflects movements of the Irish pound against the currencies of all currencies with which we trade, not just sterling. At present the effective trade-weighted exchange rate index of the Irish pound is at about the same level as at the start of this year. Overall, therefore, the impact of recent exchange rate movements on the price level is likely to have been negligible.

Would the Minister agree that a major component of our exports to Britain and other countries is of course imports and that the fall of our currency as against theirs means that the cost of these has gone up thereby compounding and adding to inflationary pressures here at home? It is not simply enough to say that competitively we have improved our position on the British market as a result of the break with parity. Unfortunately, there is two-way traffic here and the wide divergence growing between the punt and the pound is likely to add to our difficulties.

As I pointed out, the question of competitiveness arises not only in our export market to Britain but also in our home market. In so far as British goods coming in here are dearer, they are faced with competition in many areas from Irish and indeed other imported goods. But it is very important to bear in mind what I said: that if one wants to measure the effect of the movement in currencies one gets a far more accurate assessment of the effect here, on inflation or otherwise, by having regard to the effective trade-weighted exchange rate index. As I have indicated, that is at about the same level as it was at the beginning of the year. That being so, it is clear that the impact of the exchange rate movement recently on price levels here is likely to have been negligible.

If I am correct in having heard the Minister say that it was not possible to make any estimation at present of the influence of the break in the link with sterling on inflation, would he accept that after the operation of the break for some period it will be possible to make such an estimation?

Yes, although one cannot take sterling in isolation. That is the point I have been endeavouring to make clear. One must have regard to the effect in relation to the currencies with which we trade if one wants to get the effect on our economy and that is done by the effective trade-weighted exchange rate index.

23.