THE PACE of price declines across the economy quickened in July, with deflation now likely to exceed 6 per cent over coming months.

The latest figures from the Central Statistics Office (CSO) show that prices in July were 5.9 per cent lower than in the same month of 2008.

The numbers suggest all households in the State must now be benefiting from lower prices in some form, with the largest drops seen in housing, fuel and clothing costs last month.

When mortgage interest costs are stripped from the data, the overall annual price drop was 2.6 per cent.

Prices have been in steady decline on an annual basis since the start of the year, with the size of the fall increasing each month.

Between June and July, prices fell by 0.8 per cent.

A breakdown of the figures shows that prices in the housing, water, electricity, gas and other fuels category were more than a quarter or 26.8 per cent cheaper in July than in the same month of 2008.

A decline of almost a half in mortgage costs, reflecting lower interest rates, was behind much of the percentage fall, while rents were down by 16.4 per cent.

Helped by seasonal sales, clothes and shoes were 11.2 per cent cheaper on an annual basis and 9.9 per cent lower when compared to June.

The effect of price-cutting by supermarkets could, meanwhile, be seen in the food sector where prices decreased by 4.2 per cent in the year to July.

Prices fell by 1.3 per cent last month alone, with some fresh vegetables more than 6 per cent cheaper than in July 2008.

Breakfast cereals were 4 per cent cheaper than a year earlier, while some meats and milk products were down by 6.5 per cent. Poultry prices fell by 10.4 per cent.

Restaurants and hotels also saw price reductions, leading to a 16.2 per cent annual drop in the cost of accommodation in July.

Among the few categories where prices were higher in July was education, where costs were up 4.4 per cent on a year ago. Even here, though, July brought a slight monthly fall of 0.1 per cent.

Notable increases came in hospital services, which were up by 9.4 per cent, and in bus fares, which rose by 10.9 per cent year-on-year.

Fine Gael finance spokesman Richard Bruton seized on those categories to claim “Government-controlled prices are soaring while prices everywhere else are falling”.

He said the overall decline in prices was “progress”, but added that it was not sufficient to strengthen exporters’ competitiveness.

Small business group Isme, meanwhile, called on the Government to immediately cut the cost of public services so companies could remain competitive. Fellow business umbrella group Ibec said it was vital lower costs be reflected in wages across the economy.

Goodbody economist Dermot O’Leary suggested the scale of price declines in force was comparable to trends last seen in 1931. He said the falls “must be having some influence on the ability of consumers to deal with falls in nominal incomes”.

Dr Ronnie O’Toole, economist with National Irish Bank, said the Republic has made substantial strides in regaining competitiveness against other EU countries. The UK was now 5 per cent more expensive, he said, noting that this would help offset the competitiveness problems attached to sterling weakness.