Republic tops euro-zone inflation table at 4.2%

The annual rate of inflation across the euro zone rose in July from 1.8 per cent to 1.9 per cent with the rate of price increases remaining highest in the Republic.

The figures were in line with official estimates, with some economists suggesting the upward spike provided support for the European Central Bank (ECB) to hold-off on raising interest rates for the time being.

Bank of Ireland said yesterday it was cutting its range of fixed-rate mortgages in response to the continued fall in the cost of funds in the financial markets.

The bank's one-year fixed rate for new customers has been reduced to 3.99 per cent, a reduction of 0.1 of a percentage point. The one-year fixed rate for existing customers has also been reduced by 0.24 of a percentage point to 4.85 per cent. Other banks are expected to follow suit if pressure for an interest rate rise remains muted.

According to Eurostat, the Luxembourg-based statistical office of the European Communities, inflation remained highest in the Republic, coming in at 4.2 per cent at the end of July.

The rate of price increases was also relatively high in the Netherlands, at 3.8 per cent, and Greece and Portugal, where the rate of inflation was 3.6 per cent.

The states with the lowest rates of inflation were Germany, where prices rose by 1 percentage point, and Belgium at 1.1 per cent. Compared with June 2002, annual inflation fell in two member-states, rose in nine and remained stable in four.

According to a measure of core prices - which excludes food, alcohol, tobacco and energy costs - the rate of price increases across the euro zone fell by 0.1 of a percentage point in July.

Year-on-year, using this basis, the rate of inflation rose by 2.4 per cent, which is also in line with analysts' forecasts.

Although the headline rate of inflation was slightly higher at 1.9 per cent in July, it is still below the ECB's 2 per cent ceiling.

Many analysts now expect the ECB to hold its key interest rate at 3.25 per cent, with an increase of 0.25 of a percentage point expected in 2003.

This reflects a more sanguine view on interest rates than in recent months, when many economist had been predicting a hike in ECB key interest rates to 3.5 per cent in the autumn.

Expectations that an increase in interest rates will be some time off have been fuelled by weak economic growth across the euro zone.

Economists are now predicting the euro zone will grow by 1 percentage point in 2002 compared with previous forecasts of 1.4 per cent.

Yesterday the ECB said it was setting a tender for 14-day security refinancing agreements, offering banks liquidity at a minimum bidding rate of 3.25 per cent.

Annual inflation across the 15-member European Union rose from 1.6 per cent in June to 1.8 per cent in July 2002, according to a Eurostat report, confirming preliminary figures released at the end of July.

In Britain, the rate of inflation stood at 1.1 per cent at the end of last month.