The annual rate of inflation fell to 1.4 per cent in March, its lowest level since August 1997, as lower mortgage rates reduced the cost of housing.

Falls in the price of clothing and footwear since last year and a decrease in the cost of fuel and light also helped offset increases in food prices and in services and related expenditure, particularly increases in the fees going to doctors and dentists.

Overall, consumer prices rose by 0.3 per cent in March compared to the previous month, according to figures released by the Central Statistics Office yesterday.

The main factors behind the monthly increase of 0.3 per cent were a rise in the cost of clothing and footwear due to seasonal price trends and higher food costs due to rises in meat prices, particularly mutton, lamb and pork, bread and in the cost of eating out.

Transport costs were also pushed up by increases in motor insurance although housing costs fell because of a small decrease in local authority mortgage interest repayments, the CSO said.

But Irish inflation remains well above the European Union average. When measured using an EU-wide index, it increased by 2.0 per cent in the 12 months since last March. By contrast, inflation in the 11 countries participating in Economic and Monetary Union averaged just 0.8 per cent in February.

However, Dr Dan McLaughlin, economist with ABN AMRO, says this is a small price to pay for the high growth differential in Ireland's favour.

Analysts said they expected Irish inflation to fall further, dipping as low as 1 per cent before picking up toward the end of the year.

"Our profile shows inflation starting the year at 1.5 per cent, falling to 1 per cent in the middle of 1999, before rising sharply to around 2.5 per cent in December," said Mr Alan McQuaid, economist with Bloxham Stockbrokers.

Factors such as the recovery in the price of commodities, particularly oil, should drive prices higher toward the end of the year while the euro's weakness against the dollar will also affect Irish inflation as 80 per cent of imports come from outside the euro zone.