Consumer prices increased by 0.5 per cent in April, as the cost of oil continued to rise.

Annual inflation is now running at 1.4 per cent, according to the latest data from the Central Statistics Office, the same annual rate as last month. The inflation rate excluding mortgages is now running at 2.3 per cent, while the official EU rate is 2 per cent.

Dr Dan McLaughlin, chief economist at ABN Amro, pointed out that this was the first month when oil price rises fed through to the index. Fuel and light rose by 1.1 per cent, with transport costs, including petrol and diesel, up 0.9 per cent. The combined impact of these sectors contributed about 40 per cent of the total rise in the index.

He added that energy costs as a whole were still 1.2 per cent below last year's reading and were one reason why inflation had remained benign. "They have probably bottomed out and will make a positive contribution to inflation in the coming year."

Food, drink and tobacco, which account for almost 40 per cent of the index, also saw strong price rises in April. Food rose by 0.5 per cent, drink by 0.8 per cent and tobacco by 1.1 per cent.

Transport costs also increased by 1.9 per cent, while housing rose 0.4 per cent as a result of higher insurance and maintenance costs.

According to both Dr McLaughlin and Mr Colin Hunt, chief economist at Goodbody Stockbrokers, inflation will hit a low of 1.2 per cent in June before rising to 2.5 per cent by year end with an average of 1.7 per cent or 1.8 per cent.

However, Mr Austin Hughes, chief economist at Irish Intercontinental Bank, is more optimistic. According to his calculations, inflation will drop to just 1 per cent before heading back up. He is pencilling in an average 1.3 per cent or 1.4 per cent for the year. One of the main reasons inflation has been low is the sharp drop in mortgage interest rates late last year. Thus the rate will start to rise again as these drop out of the index towards the end of the year. There are also worries that the current weakness of the euro and hence the pound against sterling will also feed into inflation later this year as retailers put up prices to recoup the cost of imports.

Last year, the pound's weakness was seen as directly contributing to the peak of inflation at 3 per cent in August. However, according to Mr Hunt this time around the ongoing strength of sterling was being countered by the low inflation outlook in Britain. Mr Hughes added that sterling was strong against the entire euro bloc, which was causing problems for British manufacturers who were finding it difficult to pass on price increases.

"On top of that there is a belief that sterling strength is unsustainable, in which case producers may be less aggressive in implementing price increase," he said.