HIGHER MORTGAGE costs and strong oil prices drove up the cost of living again in April, with the annual rate of inflation now at a 30-month high.

The Central Statistics Office said annual inflation rose from 3 per cent in March to 3.2 per cent in April, the strongest rate recorded since the end of 2008.

Economists expect the pace of growth in inflation to slow as the year progresses, however, helped in part by this week’s decision to cut the VAT rate on various consumer-related items.

The monthly inflation rate declined in April, falling from 0.9 per cent to 0.4 per cent. Lower prices for alcohol and some foodstuffs helped to temper the overall monthly increase.

The biggest driver behind growth in the annual rate came from mortgage interest costs, which have been rising as lenders have passed on higher costs of funding to borrowers on variable rates. Further increases in this category can be expected over coming months as April’s ECB rate hike feeds through into the figures and additional rate increases are levied.

Energy prices also added substantially to the annual growth in April, contributing about one-third to the increase as unrest in the Middle East continued to buoy oil prices.

Domestically, the price of diesel was ahead by 18.2 per cent on the same month of 2010, petrol was up by 13.8 per cent and liquid home heating fuel climbed by 33 per cent.

Transport costs were also pushed higher by global energy inflation, with air transport ahead by 27.3 per cent on the year.

Insurance was the other main component of the annual increase, as premiums for motor, home and health policies all climbed.

Out of the 12 sub-indices that form the overall inflation rate, five posted an annual decline in April.

Alcohol and tobacco prices fell, led by spirits and wine, although beer prices were a touch higher.

Prices for furnishings, household equipment and routine household maintenance were also lower, with carpets and furniture markedly weaker.

The clothing and footwear index fell too, declining by 2 per cent as shoes prices fell sharply. Recreation and education prices also dropped.

Julie Tennent, economist with Goodbody, noted the main inflationary offenders were external, while the domestic economy remains weak.

This should mean that the current period of high inflation is “transitory”, she said.