Inflation in the euro zone dropped sharply in January, falling below the European Central Bank's (ECB) target of 2 per cent.
The drop makes a rise in euro-zone interest rates more remote, although the ECB is also unlikely to cut rates when its governing council meets in Frankfurt on Thursday.
Annualised inflation in the euro zone fell to 1.9 per cent in January, compared to 2.4 per cent in December, according to a revised estimate released yesterday by Eurostat, the EU statistics office.
Inflation in the Republic fell to 2.1 per cent, compared to 2.4 per cent in December, leaving it close to the euro-zone average.
Inflation was highest in Greece, at 4.2 per cent, with Finland at the other end of the spectrum, experiencing deflation at 0.2 per cent.
Euro-zone inflation is now at its lowest level for 10 months, despite the impact of higher oil prices and the euro's 10 per cent rise in value against the dollar during the past six months.
A separate report from the European Commission showed that business confidence has plunged to its lowest level for almost a year, suggesting that companies are reluctant to increase prices amid persistently high unemployment in the euro-zone's biggest member-states.
Wage increases in the euro-zone have remained moderate, helping to push down inflation. Despite the gloom evident in the business world, consumer confidence remained stable, according to the Commission's report.
Tax and price cuts helped consumer confidence in Germany, France and Italy, the three largest economies in the euro zone, to rise.
Eurostat said falls in the cost of vegetables, telecommunications and clothes were responsible for much of the decline in inflation while the price of tobacco, transport fuel and heating oil increased.
ECB president Jean Claude Trichet warned earlier this month of upside risks to price stability, stressing the need for vigilance in economic policy. He predicted that inflation in January would be lower than in December but suggested that further price volatility was likely.
