New figures from the Central Statistics Office today show that the annual rate of inflation rose to 4.5% in August from 4.2% in July. The rate is now at its highest level since March 2003 and was higher than expected.
Economists are now predicting that inflation could hit 5.5% later this year or early next year.
August saw increases in the prices of petrol, diesel and home heating oil, while the cost of average mortgage interest repayments and rents also rose. After the ending of the traditional summer sales, prices of clothing, footwear and furnishings were also more expensive last month. The price of eating out and accommodation also went up.
The CSO said that consumer prices increased by 0.8% in August, compared to an increase of 0.5% the same time last year.
During the month the price of clothing and footwear jumped by 7.3%, while household equipment and furniture costs rose by 1.3%. Transport costs were up 1.2% with higher prices being charged for petrol, diesel and car rental.
The cost of housing, water, electricity, gas and other fuels rose by 0.8% as average mortgage interest repayments, private rents and home heating oil costs increased. Prices in restaurants and hotels were also up 0.6% in August.
The CSO says that the annual rate of inflation for goods last month was 1.7%, while the rate for services was 7%.
Davy Stockbrokers said the annual rate for September was unlikely to be much different, but the October number could be close to 5% and inflation could well be above 5.5% by December.
Ulster Bank economist Pat McArdle predicted a 'modest decline' in September, but said inflation would reach a peak of 5.5% in January. He said a large number of increases in smaller items were mainly to blame for August's rise. 'Some of the more notable ones were car rentals, which rose quite strongly, recreation activities and accommodation,' he said.
Small business group ISME expressed 'shock' at the latest rise in inflation, and called on the Government to help bring inflation closer to the European average.
Chief executive Mark Fielding questioned the role of the anti-inflation committee set up by the Tánaiste in 2003, describing it as 'as effective as a chocolate fire screen'. He also warned the Government to be prudent in the upcoming Budget.
IBEC chief economist David Croughan energy price rises and higher interest rates had added more than 2% to the rate of inflation. 'While these factors are outside our immediate control, they must not be passed through to the rest of the economy,' he said.
Mr Croughan said the main concern was the return of high inflation in the services sector. 'The CSO recorded service sector inflation at 7%, which is the highest rate since October 2002,' said Mr Croughan.