Fuel prices help drive inflation to 2.4 per cent

Inflation rose for the second month in succession to 2.4 per cent, from 2.2 per cent in April, the highest rate this year. Rising fuel prices and increases in the cost of health and education services were the main drivers behind the rise.

On a monthly basis, prices rose 0.4 per cent, double the rate in May last year.

The services sector is proving significantly more vulnerable to inflationary pressure, recording a 4 per cent annualised rate in May compared to a rate of just 0.5 per cent for the goods sector.

"Unless this trend is reversed, it will continue to have a negative effect on Ireland's competitiveness abroad, particularly in the area of tourism," said Goodbody economist Philip O'Sullivan.

The harmonised index that measures inflation across the euro zone on a standardised basis was unchanged at 2.2 per cent last month.

Bloxham economist Alan McQuaid said that inflation had averaged 2.2 per cent in the first five months of the year, up from 1.6 per cent in the same period in 2004.

Davy Stockbrokers said that inflation would fall back next month and was likely to remain close to 2 per cent until October.

"Apart from energy and mortgages, there is not a lot of inflation in the system," said chief economist Robbie Kelleher.

"If we strip out these two components, the remainder of the CPI (89 per cent of the total index) saw prices increasing by only 1.2 per cent in the year to May," he added.

Fine Gael spokesman Richard Bruton said petrol prices were rising more quickly in the Republic than anywhere else in Europe. "The Government... has done nothing to prevent the rise of 'rip-off' Ireland in sectors under its control," he said.

Labour's Brendan Howlin said the notable feature of May inflation data was that "the major increases are in many basic goods and services on which households around the country are dependant".

Green spokesman Dan Boyle said the "prospect of creeping inflation" was a concern.

The Small Firms' Association (SFA) said that limiting the pick-up in Irish inflation would have to be "the key component of Government economic policy".

"It is very worrying that the Government-led public sector is the main driver of inflation in areas such as water, gas, electricity, health and education," said the SFA's director, Pat Delaney.