Irish inflation remains the third highest in the European Union after the Netherlands and Portugal, figures for last month released yesterday show.

At 3.8 per cent in October, consumer prices in the Republic were topped only by those in the Netherlands, where inflation reached 5.0 per cent, and in Portugal, which recorded price increases of 4.2 per cent. However, the Irish figure was down from 4.2 per cent in September.

Overall, euro-zone prices rose 2.4 per cent in October from a year ago, while prices fell 0.1 per cent from the previous month, Eurostat, the European Union's statistical agency said. This was the lowest annual rate of increase since January 2001.

The headline inflation rate was unchanged from the figure reported earlier this month, when Eurostat released an early estimate of inflation for the first time, and was down from September's 2.5 per cent.

However, the core inflation rate, which excludes energy, food, alcohol, and tobacco costs, rose to 2.3 per cent from a year earlier, compared to the 2.2 per cent rate reported in September. The subdued inflation picture and sluggish growth outlook has added to hopes of further European Central Bank (ECB) interest rate cuts, with many economists looking for a further half a percentage point cut in rates before the end of March.

In its November bulletin, released earlier this week, the ECB said it was confident inflation would fall below its 2 per cent target next year, while gross domestic product would grow below its potential rate of around 2.5 per cent for part of the year. But the bank said current interest rates were appropriate to ensure price stability and favourable to recovery.

In an interview yesterday, ECB council member Mr Ernst Welteke said the ECB's interest rate policy was "appropriate".