The annual rate of inflation fell back to 4.4% in July from 5% in June, according to the Central Statistics Office.
The main factor in the fall was a big drop in clothing and footwear and furniture prices due to summer sales.
Prices fell 0.3% compared with June, as clothing and footwear prices fell by almost 11%. Prices across a range of food and drink products were also lower.
This helped offset further rises in mortgage repayments, home heating oil and transport costs. In the transport category, higher air fares, petrol and diesel prices outweighed falls in the prices of new and second-hand cars.
As measured by the EU's harmonised index of consumer prices (HICP) - which does not include mortgage repayments - the annual inflation rate fell back from 3.9% in June to 3.6%. The annual rate of inflation for services in July was 4.5%, while goods inflation was 4.2%.
Tánaiste and Minister for Enterprise, Trade & Employment Mary Coughlan has said she is glad to see a reduction in the rate of inflation. She said a lot of the reduction could be attributed to pressure put on the retail sector by the National Consumer Agency and the Government.
She 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.
Weaker spending forcing prices down?
Economists welcomed the figures, but differed on where inflation would go over the coming months.
Alan McQuaid of Bloxham said it would be 'foolish' to assume that we had seen the peak of the rise in oil and food prices, and he forecast that inflation would pick up again in the short-term, though it was unlikely to go over 5%.
Deirdre Ryan of Goodbody said retailers appeared to have stepped up the pace of price discounting, most likely in response to the weak consumer spending environment, and she expected inflation to ease further in the months ahead.
Davy said rises in electricity and gas prices should keep inflation above 4.5% in the short-term, but it would come down sharply next year. Davy and Ulster Bank's Pat McArdle said the Government was right to let the pay talks collapse as the inflation picture was beginning to improve.
IIB economist Austin Hughes blamed weaker consumer spending for the drop, saying it had forced retailers to cut prices to lure buyers. He said Irish inflation was now clearly below the euro zone average.
