Falling mortgage interest rates held down the annual rate of inflation to 1.5 per cent last month.

Prices rose by 0.1 per cent in October, as higher fuel costs and service prices just about offset the mortgage rate cuts inspired by the Bank of Scotland's arrival in the market.

The measures of housing costs used in the consumer price index fell 3.1 per cent on the month, as mortgage interest costs charged by most institutions fell.

Reflecting the declining interest rate trend over the year, housing costs are down 16.9 per cent over the 12 months. The index does not take into account the actual cost of buying a property.

One of the main areas of price increases in the month was services, up 1 per cent, due to rising package holiday costs, hospital charges and rising prices for education and training. Fuel and light prices rose 1.5 per cent due to higher prices for coal and home heating oil. Transport recorded a 0.3 per cent monthly rise.

Food prices fell slightly in October with cuts in the prices of beef, pork, bacon, potatoes and fresh vegetables. The cost of meals out, however, rose.

Clothing and footwear prices fell 0.2 per cent over the month and 7.3 per cent over 12 months. Durable household goods such as washing machines and fridges fell 0.3 per cent in October and 0.9 per cent over 12 months.

Excluding mortgages and looking at the inflation rate on the basis used to compare price increases across the EU, the annual rate was running at 2.8 per cent last month, up from 2.6 per cent in September.

This is the highest in the euro area, where the monthly average is expected to be about 1.3 per cent. But economists say that with economic growth here running well above the EU average, it is hardly surprising that Ireland is also experiencing a higher rate of inflation.

Over the next few months economists expect the headline inflation rate of 1.5 per cent to rise sharply, as the large mortgage rate cuts of last November and December will not be repeated this year. ABN-Amro expects the annual headline rate will rise to 2.6 per cent by the end of the year.