The cost of living in Ireland has hit its highest rate in almost four years.

The annual rate of inflation increased from 4.4% to 4.9% in December. The increase was driven by higher mortgage interest costs as a result of the decision by the European Central Bank to increase rates.

The move to increase the price of a packet of 20 cigarettes by 50 cent in the Budget has also had an effect.

For the full year of 2006 inflation was 4%; it was 2.5% in 2005.

In 2006 the price of gas rose by 34%; health costs were up 4.4%; doctors' fees increased by 7% and dentists' fees were up 6.6%.

Mortgage interest increased by 31% in 2006, and rents rose by 7%.

The Labour Party has said the rise in inflation in December is an indictment of the Government's management of the economy.

Joan Burton, Labour Spokesperson on Finance, said Ireland has now got the highest cost of living in Europe.

IBEC has said it expects that inflation will decline steadily in the second half of the year, dropping to 3% by the end of the year.