Plummeting oil prices pushed Ireland’s inflation rate to -0.6 per cent in January, its lowest level in four-and-a-half years.
This is the second month in a row that the Consumer Price Index (CPI) has fallen into negative territory, raising fresh fears that the Irish economy is now entering a period of dangerous deflation.
Negative price growth can, in theory, make it more difficult to service debt and encourage consumers to defer spending to the detriment of the retail economy.
However, several experts insisted the current bout of deflation was being driven by global trends in oil prices and interest rates, both of which are positive for the consumer.
The latest figures suggest the average basket of goods and services in the Irish economy was 0.6 per cent cheaper in January than a year previously.
The main driver behind the change was a 6.6 per cent fall in transport costs due to lower petrol and diesel prices.
Prices for household furnishings and routine house maintenance also fell by 2.7 per cent, while the cost of food and non-alcoholic drinks dropped by 2.4 per cent.
Conversely, there were increases in the cost of education (+4.9 per cent), miscellaneous goods and services (+2 per cent), restaurants and hotels (+1.5 per cent) and alcohol and cigarettes (+1.5 per cent).
This is only the third time since 2010 that the CPI has dipped into negative territory - it fell to -0.3 per cent in December and was -0.1 per cent in February last year.
The last time it eclipsed a rate of -0.6 per cent was in June 2010 when the economy was in the grip of a deflationary spiral.
Euro zone inflation was also recently recorded at -0.6 per cent in January, well below Frankfurt’s official target of 2 per cent.
Merrion economist Alan McQuaid said: "With prices falling into negative territory, the danger is that deflation becomes entrenched in the system. Ireland is not in our view on the brink of dangerous deflation."
“It’s in a lot better shape than the euro zone as a whole. Deflation is less likely to take hold in a strong economy, and the Irish economy is healthier at this juncture than the rest of euro land. All in all, we see lower oil prices as a boost to disposable income and positive for Irish consumers,” he added.
