The annual rate of inflation was 5 per cent in May, according to Central Statistics Office (CSO) data published yesterday. Although slightly lower than April's 5.1 per cent, the latest annual increase in the Consumer Price Index (CPI) means that inflation has stayed between 4.8 and 5.2 per cent for six months in a row, writes Marc Coleman, Economics Editor

The latest data led analysts to predict that inflation would end the year significantly higher than Government forecasts. Compared with April, the seasonally adjusted CPI rose 0.4 per cent, reflecting higher mortgage interest payments and rents, as well as rising costs of eating and drinking outside the home. Prices of fresh food and clothing products also increased in April.

In annual terms, inflation remains driven mainly by the combined influence of rising interest rates and higher energy prices. For the CPI sub-category capturing these factors - housing, water, electricity, gas and other fuels - inflation was 22.6 per cent.

Rents rose by 11.6 per cent, while other contributors included alcoholic beverages and tobacco products, 5.4 per cent up on a year before; the cost of eating in restaurants and staying in hotels, up 4.9 per cent and the cost of education, where prices were 4.8 per cent higher.

Ulster Bank's chief economist Pat McArdle said the rate of inflation had peaked but would not fall significantly for the remainder of the year. "We now have greater confidence that the CPI rate peaked at 5.2 per cent last January. Despite this, our forecast for the year has not fallen, in fact it has edged up to 4.9 per cent," he said yesterday.

But NCB stockbroker chief economist Dermot O'Brien said more interest rate rises could push inflation even higher.

"After the signal from the European Central Bank yesterday that interest rates are likely to be hiked further in the autumn, the CPI inflation rate is likely to get closer to 6 per cent before the end of the year," he said.

As measured by the Harmonised Index of Consumer Prices (HICP) - the ECB's benchmark rate of inflation which excludes the impact of interest rates - inflation was 2.7 per cent in May. Although lower than CPI inflation in May, this was higher than the latest euro zone rate, 1.9 per cent for April, as well as the ECB's 2 per cent target.