The annual rate of inflation dropped back to 4.8%% in February from 5.2% in January, according to the Central Statistics Office.
Prices increased by 0.8% compared with January, but the annual rate fell as there was a 1.1% rise in February last year.
The main factor in the monthly increase was a pick-up in clothes prices and furniture and other household goods after the January sales. Clothing and footwear prices climbed 11% in the month. Higher doctors' and dentists' fees pushed up health costs by 0.5%.
Falls in petrol and diesel helped to keep the monthly rise in transport prices to 0.3%. In the housing, water, electricity and gas sector, higher rents and mortgage repayments were partially offset by a 10% drop in natural gas prices. Mortgage repayments moved up another 0.8% in the month and are now 48% higher over the year.
The annual rate off inflation for services was 9.1% in February, while there was no change in goods prices.
The harmonised EU measure of inflation dropped from 2.9% in January to 2.6%.
Business group IBEC welcomed the reduction and said it forecasts the downward trend will continue throughout the year.
IBEC Senior Economist, Fergal O'Brien said 'As expected, it now appears that we have passed the current inflationary peak and the CPI is likely to fall below 3% before the end of the year.'
Chief economist with Ulster Bank, Pat McArdle, said February's inflation was below expectations, and that it will probably swing upwards next month.
'Whereas a month ago, it looked as if inflation had peaked and would steadily decline, this is no longer the case', he said.
Mr McArdle said the recent increase in interest rates, and petrol prices, is likely to push inflation higher in a month's time, with the March rate once again going above 5%.
He said retailers were slow to unwind the January sales, with the 11.1% increase in clothing and footwear prices the lowest for five years. He said food inflation and restaurant and hotel charges rises were modest compared to last year, but that rents continue to rise.
Meanwhile, IIB bank said that it is forecasting a clear downward trend in the next few months.
'As a result, we continue to expect the annual inflation rate for 2007 will be around 4%', IIB Bank economist Austin Hughes said.
The bank said that overall Ireland's economy continues to outperform most other euro zone economies and that recent claims about inflation are not accurate.
'While inflation in Ireland is above the European average and bears watching we think some of the recent concerns in relation to Irish inflation have been exaggerated to the point where they could damage consumer and business confidence', Mr Hughes said.
Mr Hughes said: 'The recent step up in layoffs in the Irish economy seem to appear to reflect the increasing influence of globalisation and a more intense search for productivity gains by multinational companies that have to address problems of excess capacity'.
