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The annual rate of inflation dropped sharply to 2.5 per cent in November as the cost of mortgage repayments, rents and fuels declined.

This compares to an annual inflation rate of 4 per cent in October. November saw the largest monthly reduction - of 0.9 per cent - on record, bringing the inflation rate to a 3-year low.  

The drop in inflation is expected to continue as recent European Central Bank (ECB) interest rate cuts, the impact of a stronger euro and lower oil prices, take effect.

According to Central Statistics Office (CSO) figures published this morning prices for housing, water, electricity and gas declined by 5.4 per cent last month while transport costs were 2.2 per cent lower, thanks mainly to a fall in oil prices.

Diesel prices dropped almost 10 per cent last month while petrol prices fell 8 per cent as oil prices retreated from summer highs. The price of heating oil dropped over 10 per cent last month.

Over the month of November alone average oil prices retreated from $63 a barrel to $49 a barrel.

Oil has plunged from a high of $147 in July on the back of lower global demand as many of the world’s biggest oil consuming nations edge towards recession.

Food prices, which had been rising at an annual rate of more than 9 per cent, are now rising at an annual rate of 4 per cent having risen in November (by 0.5 per cent) for the first time in six months.

With retailers discounting heavily to attract consumers prices for clothing and footwear are down 7.2 per cent on the year although they rose 1.3 per cent in the month.