INFLATION remains subdued, according to the latest figures from the CSO. Continuing low prices have left the annual rate of inflation at 1.5 per cent, among the lowest in the EU.

The Consumer Price Index rose by 0.2 per cent in May, which was entirely accounted for by rises in mortgage payments.

The figures were well below economists expectations which had ranged from 1.6 per cent to 1.8 per cent and show no sign of the weakening currency feeding through to general price rises.

On the basis of the EU harmonised figures - a slightly different figure which will be used to judge who qualifies for monetary union - inflation is running at 1.4 per cent, up 0.1 per cent on the month.

Clothing and footwear prices remained subdued, falling another 0.2 per cent in May. Food prices rose by only 0.3 per cent with durable household goods such as machines up 0. 1 per cent.

These are the areas many economists had expected to see pressures emerging because of the strength of sterling against the pound.

However, the only significant increase was in housing which was up 2.4 per cent because of the latest round of mortgage rate increases.

The figures put a question mark against the Central Bank's decision to increase interest rates, which it implemented to put a brake on any emerging inflationary pressures.

Mr Jim O'Leary, chief economist at Davy Stockbrokers, said that on the face of it there is no evidence of exchange rate pressures coming through.

"We have been picking up anecdotal evidence that many companies are starting to make substantial changes to their price lists. In many cases they have raised prices significantly. Either they were not implemented in time to be counted in this index or they are being overwhelmed by price cuts in other areas.

Mr O'Leary insisted that he is sticking to his view that there is going to be an acceleration in price pressures later this year.