The annual rate of inflation fell sharply to 3.7% in May, according to figures from the Central Statistics Office, the lowest rate since December 1999. The rate was 4.3% in April.
Prices fell by 0.1% compared with the previous month. The main factor was the fall in global oil prices after the ending of the war in Iraq.
The CSO says there was a fall in the cost of home heating oil and a marginal fall in private rents. Falling motor fuel prices and lower airfares also brought transport costs down, but prices in the health sector rose, while there were also increases in the price of alcohol, restaurant meals and guesthouse accommodation charges.
The EU harmonised index of consumer prices fell by 0.2% in the month, bringing the annual rate down from 4.6% to 3.9%.
IIB economist Austin Hughes said the surprisingly large fall reflected the stark contrast between falling energy costs last month and rising costs a year earlier. He estimates that this took around 0.4 points off the annual rate.
Hughes points out that all the main commodity groups also showed declines, because of the stronger euro and more sluggish demand. He also describes as 'encouraging' signs of a slight easing of inflation in the service sector. IIB is now forecasting an average inflation rate of 3.8% this year.
Small business group ISME welcomed the decrease in inflation, but it said that external factors, including the effect of the strong euro against both sterling and the US dollar, had to be acknowledged, rather than any Government initiatives.
Employers' group IBEC also welcomed the fall but said it would be 'disastrous' to abandon efforts to tackle domestic sources of excessive inflation that had become embeded in the Irish economy.
'Ireland still has a rate of inflation that is more than twice that of the EU average and almost one percentage point above the next highest country,' IBEC said.
