The inflation rate rose slightly in September as the summer sales came to an end, according to the latest data from the Central Statistics Office (CSO).

Consumer prices rose by 0.4 per cent in September, compared with an increase of 0.3 per cent in September 1998. The annual rate of increase in the 12 months to September was 1.5 per cent, compared with 1.4 per cent in the 12 months to August.

The figures indicate that underlying inflation here remains well above that of our partners in the euro zone. The CSO's estimate of the EU-harmonised inflation rate - a measure which excludes mortgage interest costs among other items and is designed to allow comparisons across the EU - shows an annual rate of 2.6 per cent, up from 2.4 per cent the previous month. This is still at the upper end of inflation rates in the euro zone and is more than twice the 1.2 per cent average in the single currency area. However, economic growth is also much stronger in Ireland than in other EU countries.

According to Dr Dan McLaughlin, chief economist at ABN-Amro, there are two main reasons for the generally rising trend in inflation. The first is higher oil prices, which are expected to unwind towards the end of the year. The other is rising local services costs, which are likely to persist for longer. Mr McLaughlin added that the core EU harmonised rate of inflation would peak at around 3.5 per cent at the end of the year. Headline inflation would be about 2.4 per cent, he estimated.

However, according to Mr Colin Hunt, chief economist at Goodbody stockbrokers, the inflation rate will end the year at about 3 per cent. He noted that, in the final months of the year, a base or statistical effect will be seen from cuts in mortgage rates at the end of 1998, when interest rates first began dropping ahead of the entry to monetary union. The sharp fall in interest rates towards the end of last year helped hold down inflation in late 1998. This will result in an increase in the annual rate towards the end of this year as the figures in late 1999 will show a larger percentage increase than the same period last year.

The most significant September price increase was in clothing and footwear, which was up 2.9 per cent on the month, suggesting that the main impact on the figures was made by the end of the summer sales.

Services inflation was up 1.7 per cent, mainly due to increases in childcare, package holidays, education and medical insurance. Dr McLaughlin noted that this reflected higher wages where demand is pushing up childcare costs.