The annual inflation rate fell to 4.4 per cent in June, down from 4.7 per cent in May and 4.8 per cent in April. But economists have warned that it is unlikely to be a precursor to a firm downward trend in consumer prices over the coming months.

The Irish Business and Employers Confederation (IBEC) yesterday welcomed the slippage back to 4.4 per cent.

According to the Central Statistics Office, higher energy costs and more expensive health and miscellaneous services triggered a modest increase in prices in June of 0.2 of a percentage point compared with 0.5 of a percentage point increase in the previous month.

The most significant monthly increases were for higher mortgage repayments, and more expensive gas and other fuels which all rose by 0.8 of a percentage point. The cost of food, recreation and culture and restaurants and pubs all increased by 0.3 of a percentage point. Year on year, the price of services rose by 10.4 per cent, health prices increased by 10.2 per cent while education costs were 9.7 per cent higher.

IBEC chief economist Mr David Croughan noted the return to more modest price increases, suggesting the outlook for further moderation was also positive. He pointed to the marked deceleration in manufacturing output prices in May and the retail price reductions expected to come through this month as key components that will help to suppress inflationary pressures in the Irish economy.

"Furthermore, the recent strengthening of the euro exchange rate would help to exert downward pressure on prices as the year progresses," he said yesterday. IBEC hopes a more favourable inflation trend would facilitate lower wage settlements and bring pay developments more into line with the Republic's main trading partners.

Dr Dan McLaughlin, Bank of Ireland's chief economist, acknowledged that the annual inflation rate for June was a welcome change, given that the rate had been stuck at close to 5 per cent but he believed the rate would remain stubbornly high.

"Inflation in the service sector still remains stubbornly high which is largely due to pay trends in the last couple of years. We may get another mild deceleration towards the year end."

Labour Party finance spokesman, Mr Brendan Howlin, also welcomed the latest figures but expressed concern that inflation continued to be high. Mr Howlin suggests Government targets to achieve an annual rate of inflation of 4.1 per cent by year-end was unlikely to be achieved. "For that to happen, we would need to see the annual inflation rate fall off by a full percentage point very soon," he said.

Fine Gael finance spokesman Mr Richard Bruton criticised the Government for its complacency on inflation. "We simply cannot afford to price ourselves out of the market. Inflation is running at more than twice that of our main markets. Repeated promises to tackle these problems are wearing thin," he said.

Mr Bruton said one of the most significant sources of inflationary pressure in the Irish economy had arisen from the mismanagement of the public finance. "With spending racing way ahead of revenue, this threatens to undermine Ireland's long-term competitiveness. It's a high-risk strategy for a small open economy which the Government should not be pursuing," he said.

The EU Harmonised Index of Consumer Prices rose by 0.2 of a percentage point in the month, and was 4.5 per cent higher than in June 2001.