The rate of inflation declined markedly in September as fuel prices fell by more than expected, according to figures published yesterday by the Central Statistics Office (CSO).
The consumer price index (CPI) - which tracks prices of a range of consumer goods and services - grew annually by 4 per cent last September.
The latest rate is lower than the 4.5 per cent rate recorded in August, but higher than the 2.5 per cent rate recorded for last year as a whole.
The data came as the Central Bank warned in its latest quarterly bulletin about the gap between Irish and average European inflation. It also said that the growth in the Republic's balance of payments deficit was not sustainable in the long run.
Energy prices, a significant element in the acceleration in inflation in the first half of this year, registered a notable fall of 3.6 per cent in September.
The year on year rate of increases in energy prices was just 0.1 per cent, suggesting an almost complete reversal of earlier price increases in this category.
"Petrol prices were falling rapidly in early September when the CPI was read," Ulster Bank chief economist Pat McArdle said yesterday.
On a European harmonised basis, Irish inflation fell to its lowest level in 2006, at 2.2 per cent. The figure was a full percentage point lower than the August reading.
But Tom O'Connell, assistant director at the Central Bank, said yesterday that it was a matter of concern that the Republic's inflation rate was still higher than that of the euro zone.
"There is still a big gap emerging there. While it's not as bad as some months ago, we still need to be concerned, particularly as we're starting from a situation where we have the highest price level in the euro area."
Mr O'Connell described the Republic's future economic outlook as "highly favourable", but said that growth was excessively reliant on domestic demand. Referring to the Republic's current account deficit of 4.25 per cent - which reflects the excess of imports over exports - Mr O'Connell said it showed that the external performance of the economy was unsustainable and that the Government should take steps to calm domestic demand.
"At a time when the economy is at full employment levels, it's not the time for the Government to be injecting demand," he said, as the bank called for a "broadly neutral" budget in December.
Private sector analysts say inflation will remain strong, averaging 4 per cent this year. "Despite the fall in inflation in September, rising underlying inflationary pressures in the economy suggest that the overall risks remain tilted to the upside over the next six months and a headline rate of 5 per cent can't be ruled out over the period," Bloxham stockbroker economist Alan McQuaid said yesterday.
Opposition spokespersons accused the Government of being responsible for recent increases in the cost of living.
"Over a five-year period, this Government has increased the price of its services by 52 per cent. This is three times the rate of growth of the price of private services and an incredible seven times the rate of growth of the price of goods in the shops," Fine Gael finance spokesman Richard Bruton said yesterday.
