The annual rate of inflation dropped to just 1.5 per cent at the end of last month, its fifth consecutive monthly fall.
In January alone there was a decrease of 0.8 per cent in the overall level of the consumer price index (CPI), mainly due to lower mortgage interest rates and the January sales.
Lower mortgage rates took 0.14 per cent off the CPI last month, while the January sales were responsible for a 0.75 per cent decline due to large reductions in clothing and footwear prices and household durable goods.
Dr Dan McLaughlin, chief economist at ABN-Amro, said the discounts were even greater than a year ago, reflecting the falling price of goods imported from Asia, as well as enhanced competition in the retail sector.
Transport costs fell because of falling petrol and other motor fuel prices. However, the year on year rate was flat, when it might have been expected to be negative given the fall in crude oil prices. "Petrol is obviously not as competitive as high street retailing," Dr McLaughlin noted.
In contrast, there were rises last month in food, tobacco and alcohol prices, as well as services.
Food prices rose by 0.5 per cent in January, reflecting seasonal increases in potatoes and fresh fish. Tobacco rose by 0.5 per cent, as did services. Looking at price trends over the past year, the most notable changes were a fall in housing of 7.6 per cent - mainly due to lower interest rates - clothing down 6.4 per cent and fuel and light down 2.4 per cent. Food and tobacco prices, in contrast, were up 3 per cent.
The Central Statistics Office also published EU-harmonised figures, showing a slightly different inflation measure to allow direct comparisons with other EU states. On this basis, prices also fell by 0.8 per cent in January - and were up 2.1 per cent since January 1998.
Mr Jim O'Leary, chief economist at Davy Stockbrokers, said he was expecting the inflation rate to average around 1.1 per cent for 1999 as a whole, and it could be even lower if food prices reversed their large gains of last year, which were due to bad weather.
The figures appear to be final proof, if it were needed, that the global deflationary environment was far more important in terms or predicting the Irish CPI than other factors. The strengthening of the pound against sterling last year also helped the figures, Mr O'Leary noted.
According to Mr Austen Hughes, world economic activity was likely to be fairly weak this year. Deepening gloom about the Japanese economy meant Asia was unlikely to contribute substantially to international activity, he said. Europe seemed set for a sluggish growth while the US economy should move to a more modest growth path.
Mr Hughes said that, in addition, weak commodity prices, particularly oil, should feed through to lower consumer goods prices.
"These favourable developments in the price pipeline and a weak macroeconomic backdrop are key ingredients in our continuing expectation of continuing easing in price pressures."
He added that the arithmetic was also positive. Over 1998, prices accelerated rapidly because of the significant weakness in food prices and the weakness of the pound early in the year.
The drop in Irish inflation, which was likely to be mirrored across the EU could also prompt another rate cut from the European Central Bank, according to Mr Hughes. It was now possible that average euro zone inflation could come in around 0.5 or 0.6 per cent.
Such a low rate of inflation from already low price levels was deflationary and signalled a big risk for the European economy and the argument for lower official interest rates would become "almost irresistible", Mr Hughes said.
