Falling oil prices pushed inflation in Ireland down to an annual rate of 3.7 per cent in May, its lowest since December 1999, data showed today.
The Central Statistics Office said consumer prices fell by 0.1 per cent on the month compared with a monthly rise of 0.3 per cent in April. Inflation came to 4.3 per cent in the year to April.
"The numbers are a lot better than we had been expecting and it's positive news for inflation going forward," said Ms Geraldine Concagh, senior economist at Allied Irish Banks. AIB had forecast a year-on-year increase of 4.1 per cent.
Ms Concagh said a decline in mortgage rates and lower oil prices had helped bring the headline inflation figure lower. She predicted a further easing of inflationary pressures over the next few months.
She added the bank was likely to revise downwards its prediction of an inflation rate of 4.1 per cent for 2003.
However much of this month's fall is due to external factors such as falling oil prices rather than any anti inflation measures introduced by the Government.
The annual rate of inflation in the largely domestic services sector is now running at 5.4 per cent, significantly higher than the rate of 1.7 per cent in respect of goods.
Education costs remained unchanged in May putting the annual increase at 9.9 per cent, down from 10.4 per cent in the year to April 2003. This compares with an annual rate of 9.7 per cent for the year to May 2002.
Employers' group IBEC welcomed the unexpectedly sharp fall in prices but warned against complacency as domestic sources were still fuelling inflation.
IBEC noted that Ireland's inflation rate is still more than twice that the EU average and almost one percentage point above the next highest country.
Inflation in alcoholic beverages and tobacco is up 9.8 per cent year on year, health is up 7.8 per cent and education is up 9.9 per cent.
IBEC economist Mr Aebhric McGibney said the persistent pockets of inflation must be tackled by promoting greater competition in certain sheltered services, greater efficiencies in the public sector and resisting further increases in indirect taxes.
Additional reporting by