Inflation fell again in July as the traditional summer sales pushed down the prices of clothing, footwear and household goods, and petrol prices fell.
The annual rate of inflation dropped to 4.8 per cent in July from 5.3 per cent in June, according to the latest figures from the Central Statistics Office.
This followed the fall in the annual rate for the 12 months to end June to 5.3 per cent, from 5.4 per cent for May.
Consumer prices fell by 0.3 per cent in July compared with an increase of 0.3 per cent in July last year, when the normal seasonal reduction from the summer sales was outweighed by an increase in oil prices.
NCB chief economist Dr Dermot O'Brien said the latest figures were in line with expectations and showed that inflation was unwinding as forecast with the specific factors which drove inflation up last year - interest rate and oil price increases - no longer having an impact.
"These figures give the lie to any worries about an overheating economy," he said, pointing out that concern had now moved on to the outlook for economic growth.
Davy chief economist Mr Jim O'Leary said the figures showed inflation was on track for the kind of deceleration that had been expected over the next six months. He is forecasting an annual inflation rate of around 3.5 per cent by late 2001/early 2002 and expects an annual rate next year of 3 per cent or lower. Dr O'Brien expects annual inflation to be under 4 per cent by year end.
However, Mr O'Leary said inflation was now "last year's story". The focus is on the pace of activity in the economy. The latest inflation figures cannot be used to check for changes in the pace of economic activity for two reasons, he explained: it takes some time for slowing growth rates to influence prices, while the slowdown is concentrated in the technology sector - not a significant component of the consumer price index, which measures inflation.
While it is now moving in the right direction, Irish inflation remains among the highest in the euro zone, though it now ranks below June inflation levels in Portugal, the Netherlands and Greece. But at 4.8 per cent, the annual Irish inflation rate is now well below the high of 7 per cent reached in November last year.
On an EU-harmonised basis, Irish prices were down 0.3 per cent in July and up 1 per cent in the three months since April 2001. Within the July price changes, the biggest fall was in clothing and footwear, where prices fell by 8 per cent.
Other price changes included a 1.8 per cent fall in durable household goods and a 1 per cent fall in transport prices. But there were price increases in services and related expenditure.
Increases in the prices of package holidays, hairdressing, public telephone charges and services such as childcare drove up inflation in the services and related category. Higher prices for repair and decoration materials and higher average mortgage repayments pushed up inflation in the housing category. In the food category, while the prices of fresh vegetables and fresh fish fell, the cost of meals out, meat, potatoes and soft drinks were higher.
Government chief whip Mr Seamus Brennan said the latest figures were good news for the economy, but warned that there must be vigilance regarding international developments.
"Despite the pessimistic news earlier this week on the jobs front, the underlying performance of the Irish economy still remains very strong and we continue to enjoy growth levels that are the envy of our European partners," he said.
IIB Bank chief economist, Mr Austin Hughes, said the fall in inflation largely reflected developments of the past and expressed concern about the rising levels of mortgage debt and housing repair and decoration costs, and services costs, in the July figures.
