The euro zone inflation rate fell more than initially estimated in September as soaring energy costs were offset by lower food prices and retailers keen to control prices amid flagging consumer demand.
European Union statistical office Eurostat said today the inflation rate in the 12-nation single currency area fell to 2.1 per cent in September from 2.3 per cent in August, as an earlier estimate was revised down by 0.1 point.
Inflation in Ireland was the third highest in the euro zone at 2.4 per cent, behind Spain and Greece, at 3.2 per cent and 2.9 per cent, respectively.
This moved inflation closer to the European Central Bank's goal of close to but below 2 per cent despite high oil prices, which were offset by lower prices of food, cars, garments, audiovisual equipment and telecoms services.
"Fuels for transport had the largest upward impact on the headline rate (0.28 per cent), followed by tobacco (0.26 per cent) and heating oil," Eurostat said, adding the cost of vegetables had the largest downward impact on inflation.
The inflation figures, including the increase of 0.2 per cent from August, were in line with analysts' expectations.
The downward revision reinforced expectations the ECB would leave its interest rate flat at 2 per cent for some time because a surge in oil prices, to $55 per barrel last week, has been slow to show up in other sectors of the economy.
The ECB is on guard for any second-round effects of higher oil prices hitting inflation, but has said that so far the risk of this happening is contained.
But analysts expect euro zone inflation's decline to be short-lived due to renewed spikes in oil prices and less favourable developments in food prices in the fourth quarter.
Inflation has exceeded the ECB's 2 per cent limit for five months and may surpass the bank's goal for a fifth consecutive year in 2004.
But the ECB is also concerned that high oil prices pose a risk to the euro zone's recovery, which is likely to push into the background prospects for a credit tightening.