Lower mortgage payments result in inflation drop

The rate of annual inflation fell slightly in June to 5.3 per cent from 5.4 per cent in May, according to the latest data from the Central Statistics Office.

Over the month of June there was an increase of 0.5 per cent, mainly due to higher food prices, increased oil prices and rises in the cost of package holidays.

On an EU-harmonised basis prices were up 0.7 per cent in the month giving an annual increase of 4.3 per cent, from 4.1 per cent in May.

Inflation is also slowing slightly across the euro zone, increasing the likelihood of an interest rate cut by the European Central Bank later this year.

Spanish inflation remained steady at 4.2 per cent in June but prices fell slightly in Finland and Portugal, following the trend already set by Germany and France.

Inflation is expected to fall back over the coming months if food prices decline in the aftermath of foot-and-mouth disease. However, food prices were up 0.7 per cent in June and 7.2 per cent over the past 12 months.

The price of beef, bacon, fresh vegetables, fresh and smoked fish, bread, dairy products, fresh vegetables, meals out, fresh fruit, chocolate, biscuits, margarine, tea and soft drinks all rose. There were reductions in the price of lamb, pork, tomatoes and breakfast cereals.

Drink prices continued to rise with increases in the prices of beer, spirits and wine in pubs, hotels and off-licences. The annual increase added 0.59 per cent to the overall consumer price index.

Transport costs were higher with increases in motor fuel, boat fares, air fares, car hire and insurance.

Services prices rose with increases in the cost of package holidays, accommodation charges, hairdressing and entertainment.

In contrast the cost of housing fell due to lower mortgage interest repayments. However, there was an increase in the cost of local authority rents.

According to the Government Chief Whip, Mr Seamus Brennan, inflationary pressures are continuing to ease.

"These figures reflect the further moderation in the rate of price increases," he said.

But Labour finance spokesman Mr Derek McDowell said the Government was still failing to meet its own targets on inflation.

The Fine Gael deputy leader, Mr Jim Mitchell, said the continuing high levels of inflation were leading to job losses.