Further signs that the rate of inflation could be picking up are contained in figures published yesterday. However, the increase in prices last December was still slightly below stockbrokers' expectations. Despite large-scale consumer spending before Christmas and a further fall in the pound against sterling, prices only rose by 0.3 per cent, according to the consumer price figures from the Central Statistics Office (CSO).

The underlying price trend in December was flat with Budget changes in the price of cigarettes accounting for most of the headline rate. The only other significant spur to inflation came from food, where seasonal increases drove up the prices of fresh fruit and vegetables.

Of 10 major items which the Central Statistics Office use, five showed no price increase at all over the month, Mr Jim O'Leary, chief economist at Davy Stockbrokers noted. These included, clothing, footwear, durable goods, housing and fuel as well as light.

Tobacco accounted for one third of the rise with food accounting for a similar rise with transport, mostly due to an increase in insurance premiums, also up marginally.

On average over the whole of 1997 the index rose by 1.5 per cent, marginally lower than the 1.6 per cent recorded in 1996. In the 13 months since November, 1996, the index rose by 1.9 per cent. However, on an EU-basis prices rose by an average of 1.2 per cent over the whole of 1997, keeping us among the lowest in the EU.

According to Mr O`Leary the accelerating trend which began in the late summer remains in place.

He pointed out that the price increases over four months from September to December came to 1.4 per cent which on an annualised basis would point to an inflationary peak of 4.25 per cent towards the end of this year.

In addition, the rate of inflation over the last quarter of last year was dramatically higher than in previous years.

Between 1993 and 1996 the quarterly figure varied from 0.1 per cent to 0.3 per cent. In 1997 it came in "extravagantly higher" at 1.1 per cent, according to Mr O`Leary.

However, Dr Dan McLaughlin, chief economist at Riada Stockbrokers said unless there is drastic change in competitive pressure among retailers it is difficult to see inflation heading for 4 per cent and beyond.

He added that he is expecting inflation to average 2.8 per cent in 1998.

The inflation data had little impact on the currency which slid slightly on the day. Dealers said that investment bank Goldman Sachs had not been in the market which allowed sellers to drive down the price.

The pound closed at DM2.5090 from DM2.5263 on Monday and at 84.10p from 84.07p.

The absence of any announcement from the meeting of finance ministers on a revaluation of the pound led to some selling from oversees players, according to Mr Kevin Daly, economist at Ulster Bank.