New figures from the Central Statistics Office show that consumer prices fell by 0.3% in December 2014 compared to December 2013 on the back of cheaper petrol, diesel and home heating oil as well as lower mortgage interest repayments.
The CSO said consumer prices fell by 0.4% in December compared to November.
Today's figures show that on an annual basis transport costs dropped by 3.8%, while food and non-alcoholic beverages were down 2.6% and clothing and footwear prices eased by 2.3%.
December saw a 5% increase in education costs, while miscellaneous goods and services increased by 0.2% due to higher health and motor insurance premiums.
The CSO said today that the annual average rate of inflation last year was 0.2%. This compares to 0.5% in 2013 and 1.7% in 2012.
During the year, the largest price increases were seen in the education sector (up 4.6%), alcoholic beverages and tobacco (up 3.8%), miscellaneous goods and services (up 3.5%) and restaurants and hotels (up 2.1%).
The biggest fall in prices was seen in the clothing and footwear sectors, with prices there down 3.3%. Communication costs were down 2.9% while food and non-alcoholic beverages fell 2.3%.
Euro zone consumer prices fell by 0.2% year-on-year in December because of cheaper energy, data showed last week.
That has raised pressure on European Central Bank President Mario Draghi to introduce unconventional measures to ward off a deflationary spiral in the euro zone.
Commenting on today's figures, Davy economist Conall Mac Coille said the recent decline in consumer prices clearly reflects lower energy prices and mortgage interest costs - positive developments for the Irish consumer.
He said the fall is due to global factors rather than the weakness of the domestic economy.
The economist said it is difficult to be too concerned by a negative CPI inflation number primarily driven by falling oil prices.
"Not only is GDP expanding - but it is translating into improvements in the labour market, tax revenue growth and recovering asset prices," he pointed out.
Meanwhile, Merrion economist Alan McQuaid said that despite the booming economy, domestic inflationary pressures in Ireland are likely to remain fairly well contained for some time to come.
He said with global oil prices continuing to fall, Ireland’s annual inflation rate is likely to remain in negative territory in the near-term.
"However, we do expect some uptick as the year goes on, with a strengthening labour market/falling unemployment likely prompting a gradual rise in wages, and the weakening euro set to push up import costs," the economist added.
Mr McQuaid also said that Ireland is not in danger of deflation, as the economy as a whole is in a lot better shape than the euro zone's economy.
"Deflation is less likely to take hold in a strong economy, and the Irish economy is far healthier at this juncture than the rest of Euroland. All in all, we see lower oil prices as a boost to disposable income and positive for Irish consumers," he said.
