Annual  inflation in the euro zone fell from 2 per cent in May to 1.8 per cent in June, the European Commission's statistical office said yesterday.

Once again, Ireland has the highest rate of inflation in the EU at 4.5 per cent, 2½ times the euro-zone average.

It is the first time since May 2000 that the euro-zone annual inflation rate has fallen clearly below the ceiling of 2 per cent per annum which is the European Central Bank's definition of price stability.

The monthly rate of inflation, which compares price levels between May and June, was unchanged for the euro zone as a whole, but for Ireland was 0.2 per cent.

Ireland was one of only three countries to report a monthly rate above 0 per cent.

Comparing June's figures with those from May, Ireland could claim the biggest fall in its annual inflation rate, from May's 5 per cent to 4.5 per cent.

But taking account of the size of the economies, the significant changes for the euro-zone average were in Germany, where annual inflation fell from 1 per cent to 0.7 per cent, Italy, which recorded a fall from 2.4 per cent to 2.2 per cent, and Spain, from 3.7 per cent to 3.4 per cent.

In France the rate was unchanged at 1.5 per cent and in the Netherlands it increased from 3.8 per cent to 3.9 per cent. Dutch inflation is the highest after Ireland's, followed by Greece on 3.6 per cent and Portugal on 3.5 per cent.

Ireland is the only country in the euro zone whose inflation rate is higher than a year ago.

While Ireland's rate has climbed from 4.3 per cent in June 2001 to 4.5 per cent in June 2002, German inflation has fallen from 3.1 per cent to 0.7 per cent in the same period.

The core annual rate of inflation, excluding the cost of energy, food, alcohol and tobacco, was 2.5 per cent for the euro zone as a whole, down from 2.6 per cent last month.

The statistical office, Eurostat, also released a study looking at the effects on inflation of the changeover to the euro.

Eurostat found the average rate of change in euro-zone inflation between the first six months of 2002 and the last six months of 2001 was 1.4 per cent, the same rate as in the six months ending in June 2001.

Eurostat said: "The largest part of the price increases  be explained by a normal inflation pattern and by some special non-euro factors, in particular bad weather affecting fruit and vegetable prices, car and energy prices and some significant tax increases on tobacco."

The analysis concluded that the changeover to the euro had not been "a driving factor" for price inflation in the first half of 2002.