The rate of inflation fell below 2 per cent in December, the lowest rate since October 1999, according to the latest consumer price index released today.
The average annual rate of inflation in 2003 was 3.5 per cent compared with 4.6 per cent in 2002. Econmists welcomed the fall as a signal that the slide in Ireland's competitiveness may have slowed. "These are very good figures. I think you can genuinely make a case now that inflation is no longer an issue for the Irish economy," said Mr Austin Hughes, chief economist at IIB Bank.
However, Fine Gael has warned that Government "stealth" increases will not take effect until next month.
The fall in inflation is mainly attributable to falls in the cost of mortgages and clothing - which are key components of household spending. Decreases in the cost of housing which includes interest payments fell 3 per cent in 2003 while the price of clothes and shoes fell 2.8 per cent.
The strong euro is also having a deflationary effect on food prices in December. Food, which accounts for 12 per cent of the weighted basket of household goods used by the Central Statistics Office to measure inflation, fell in price by 0.1 per cent in December compared to a rise of 2.8 per cent in December 2002.
The annual rate of inflation for services is now running at 2.8 per cent compared to a rate of 1.1 per cent in respect of goods, the CSO said.
The EU measure of inflation fell to 2.9 per cent, down from 3.3 per cent in November. The non-inclusion of mortgage interest (which fell by 14.1 per cent in the year) is the main reason for the HICP rate being higher than the Irish rate.
The most notable changes in the year were increases in health (+ 7 per cent), education (+ 6.5 per cent), and alcoholic and tobacco (+ 6.4 per cent) .
In the month of December the most significant price changes were increases in alcohol and tobacco (+2.1 per cent) and transport (+1.4 per cent), while mobile phone charges fell by -0.6 per cent.
The CPI excluding tobacco index which is used as an inflation indicator for wage negotiations among the social partners stood at 1.7 per cent in December.
The Taoiseach said the continuing downward trend in inflation was "encouraging". He said it should help to underpin the policies needed to "secure and improve our international competitiveness."
But Fine Gael's spokesman on finance, Mr Richard Bruton said that so-called "stealth" price increases being imposed by the Government would not impact on price-levels until next month.
He forecast that consumers would not get "very excited" about today's figures. "None of the 'stealth' increases announced by the government have yet been reflected in these figures," he said.
"The sad reality is that we are now in the extraordinary situation whereby all of Ireland's price inflation is due to government action, either through increases in indirect taxes, or through the announced increases in charges for services."
The Independent Business Organisation, ISME ,welcomed the reduction in inflation but warned against complacency, highlighting that there was still a significant threat from Government-sponsored
increases in public utilities.