A substantial drop in the inflation rate has been greeted with some surprise by analysts.

Today's figures show that the cost of living decreased by 0.3% in July, bringing the annual rate of inflation down to 4.4% from 5% the previous month.

The fall was led by the annual summer sales, which delivered a 10.9% drop in the cost of clothing and footwear, and a 1.4% fall in furniture and household equipment prices.

There was also a small decrease in the cost of food. But there were increases too - particularly driven by a 1.9% rise in energy prices.

This in turn fed into higher transport costs, including a 26% hike in sea transport prices. The cost of mortgages interest repayments also increased.

The new overall inflation figure may undermine union demands for a 5% pay claim at the partnership talks.

But the fall may also provide the necessary wriggle room for agreement to be reached.

Coughlan welcomes inflation drop

Tánaiste and Enterprise, Trade & Employment Minister Mary Coughlan has said she is glad to see a reduction in the rate of inflation.

She stressed that a lot of the reduction could be attributed to pressure put on the retail sector by the National Consumer Agency and the Government.

Ms Coughlan said a reduction in inflation was very much part of the needs of the unions and of consumers with regard to agreeing a pay deal at end of August or beginning of September.

The Tánaiste said both she and the Taoiseach would personally intervene in the negotiations if required, but for now they were keeping a 'hands-on' approach.

Speaking after a meeting with the National Consumer Agency in Dublin, she said she was glad to see price of oil reduced and hoped to see it reflected in the next Consumer Price Index.

Minister Coughlan said there had been a seismic attitudinal change in the consumer.