THE ANNUAL rate of inflation in the Republic has fallen for the first time in almost 50 years. Prices in January were, on average, 0.1 per cent lower than at the same time last year, according to the consumer price index published by the Central Statistics Office (CSO).

The last time Irish prices fell year-on-year was in the second quarter of 1960. As recently as last October, Irish inflation stood at an annualised rate of 4 per cent

Prices dropped by 1.7 per cent in January alone, the fourth successive month of declines and a figure described by Goodbody economist Deirdre Ryan as “unprecedented”.

Falling mortgage bills as a result of the recent cuts in European Central Bank rates were the dominant feature of the figures.

In January, mortgage costs fell by 15 per cent, accounting for about 1.2 percentage points of the 1.7 per cent monthly fall. In the three months to January, declining mortgage interest costs have accounted for two-thirds of the drop in inflation. Prices for clothing and footwear also fell, as expected, in the January sales.

The CSO data show a number of areas where prices increased quite sharply last month – including hospital charges (up 10.4 per cent) and bus and rail fares (up 7 and 8.3 per cent respectively). Prices rose across the insurance sector, notably in health, where premiums jumped 19.6 per cent.

The harmonised index of consumer prices (HICP), the indicator used to measure inflation across the euro zone which does not include mortgage interest, rose 1.1 per cent over the past year, despite falling 0.8 per cent in January.

The Irish HICP rate is now just half the euro zone average of 2.2 per cent.

Economists expect deflation to become a fixture of the Irish economy for the next 12 months at least, with Ulster Bank economist Pat McArdle forecasting that the rate might fall as low as -4 per cent at some point this year and averaging -3 per cent for 2009 as a whole.

Fine Gael finance spokesman Richard Bruton said the Government had still not addressed inflation in areas under its control.

“Although prices in the private sector fell by 0.1 per cent in the last 12 months, the CSO has revealed that prices controlled by Government have continued to soar,” Mr Bruton said. “All in all, prices for Government-provided services rose by over 6 per cent in the year to January while prices for Government-regulated services rose by 13 per cent.”