Inflation last month fell to its lowest in more than a year as cheaper petrol and summer sales combined to drive down prices.
The annual inflation rate fell to 4.8 per cent, the lowest since March last year. It was the fourth consecutive monthly decline, down from 5.3 per cent in June.
The data will be welcomed by the Government in a week which has seen a series of high profile job losses, including 900 jobs at computer manufacturer Gateway in Dublin.
Government chief whip Mr Seamus Brennan said: "Despite the pessimistic news earlier this week on the jobs front, the underlying performance of the Irish economy still remains very strong and we should not lose sight of the fact that we continue to enjoy growth levels that are the envy of our European partners." The rise of the euro to three month highs against the dollar yesterday enhanced the prospects of inflation continuing to fall in the months ahead, reducing the cost of imports from the US. The latest data should also ease the pressure from the European Union, which has been calling on the Minister for Finance, Mr McCreevy, to take steps to curb inflation.
Mr Dermot O'Brien, chief economist at NCB, said: "We have come a long way back from the 7 per cent level of last November. Late last year, people were talking about overheating in the Irish economy, predicting all kinds of disaster for us. I think that inflation has fallen so much, it pretty much knocks that idea on the head." However, IIB Bank warned that the economy may be hitting a rough patch and that lower inflation is a consequence of this. The bank said it was scarcely credible that global downsizing would not bear down on activity and employment here, just as it bears down on inflation.
The biggest fall in last month's figures was in clothing and footwear, where prices fell by 8 per cent. Other price changes included a 1.8 per cent drop in durable household goods and a 1 per cent decline in transport prices.
But there were price increases in services and related expenditure (up 0.7 per cent), housing (0.5 per cent), fuel and light (0.4 per cent) and food (0.3 per cent).
The figures still show marked rises in the price of services. Increases in the cost of package holidays, hairdressing, public telephone charges and childcare drove up inflation in this category. Higher prices for repair and decoration materials and higher average mortgage repayments pushed up inflation in housing.
Report: page 15