Ireland continues to have the highest inflation rate in the European Union, almost twice as high as the average among the 15 member-states, according to figures published yesterday by Eurostat, the European statistics agency.

Irish inflation in August was 3.9 per cent, compared to 2 per cent in the EU as a whole.

Euro-zone inflation rose to a four-month high of 2.1 per cent, climbing back above the European Central Bank's 2 per cent tolerance threshold. The increase in the inflation rate from July's 1.9 per cent was in line with economists' forecasts.

Greece, with 3.3 per cent and Spain with 3.1 per cent were the only EU countries with inflation rates close to Ireland's. Germany, where the economy has been sluggish, has a rate of 1.1 per cent. Italy was the only member of the euro zone to report a monthly decline in consumer prices.

Rising food prices were the main factor driving the inflation rate higher, with Eurostat citing a rise in tobacco prices, which are included in the food component, as the biggest culprit.

Fruit and vegetable costs fell on a monthly basis, partially offsetting a sharp monthly rise of 1.0 per cent in energy prices. This suggests that the impact of a summer heatwave on food prices has yet to be felt.

The inflation report is unlikely to change financial markets' expectations about the outlook for interest rates.