Rate cuts push Irish inflation below 5%

Inflation unexpectedly fell back below 5 per cent last month, pushed down in part by lower mortgage repayments for homeowners.

The move, which saw the headline rate fall from 5.1 per cent to 4.9 per cent, came as a surprise to analysts, many of whom had been expecting inflation to remain above 5 per cent as the full effects of December's budget were felt.

According to the figures released by the Central Statistics Office, the the increase in the standard rate of VAT to 21 per cent last March is no longer impacting on the annual inflation rate.

Consumer prices increased by 0.8 per cent on the month, slower than the 0.9 per cent increase in March last year.

Average inflation has been rising steadily since the July 2002 when it stood at 4.2 per cent.

The most substantial price increase recorded in March came in housing, water, electricity, and gas and other fuels, where inflation hit 2.1 per cent and clothing and footwear which saw a 1.7 per cent increase.

Over the last 12 months education prices grew by 10.4 per cent, while increases in hospital charges and changes to the drug payments scheme brought inflation in the health sector up to 9.3 per cent.

Price increases for alcohol and tobacco products were 9.9 per cent over the last 12 months.

The European Central Bank rate cut of 25 basis points on March 7th which resulted in lower mortgage repayments for Irish home owners contributed to the fall in the interest rate, although the full effect will not be seen until month data from April are released.