Inflation eased slightly during July, pushed down by sharp reductions in the price of clothing and footwear in summer sales.

The inflation rate averaged 4.2 per cent over the month, down from 4.4 per cent in June and 4.8 per cent in the same month last year.

However, inflation remains more than twice as high as the euro-zone average, which currently stands at 1.9 per cent. The most notable change over the month was in the clothing and footwear sectors, where prices decreased by 11 per cent between June and July, or 6.6 per cent on a year-on-year basis.

The Central Statistics Office, which collated the figures, attributed the fall to "traditional summer sales".

Economists issued a subdued welcome to the decline in the overall inflation rate, the first such fall to be seen this year.

Mr John Beggs, chief economist with AIB Group Treasury, said that while the numbers were "a little better" than he had expected, it was inadvisable to take much comfort from them.

Acknowledging the effect of seasonal sales, Mr Beggs also suggested that the recent weakening of the dollar may have come to bear on consumer prices last month.

"There could well be an across-the-board dampening effect coming from recent improvements in exchange rates," said Mr Beggs, who expects inflation to remain in the 4.25 to 4.5 per cent range over the coming months.

Mr Austin Hughes, chief economist with IIB Bank, said that downward trends in clothing prices were unlikely to influence inflation excessively over the rest of the year, pointing instead to an international stimulus.

"We expect external influences to continue to exert a moderating influence on Irish inflation because we expect global economic activity to remain sluggish at best," said Mr Hughes.

He added that technical influences were also likely to force inflation higher towards the end of the year.Last year, low oil and food prices helped to keep inflation down. However, these have since risen and are unlikely to fall.

Despite the monthly decline in the overall rate, most sectors of the economy saw prices rise on the same month in 2001. The most significant increases were in health, where prices increased by 9.9 per cent, and goods and services, where inflation hit 9.8 per cent. Education prices rose by 9.5 per cent, while prices in restaurants and hotels rose by 7.2 per cent.

Mr Beggs expressed concern about these numbers, since recently announced increases in charges in the health and education sectors have yet to kick in.

Mr Hughes expects these price increases to push inflation up to 5 per cent before the end of the year.

"In the present climate, it is vital that we don't add to competitiveness problems by boosting domestic costs unnecessarily," said Mr Hughes.

Mr Colin Hunt, chief economist with Goodbody Stockbrokers, said the overall data were "slightly better than expected" but should not give rise to celebration.

"What we're seeing is the first evidence of the increasing price-sensitivity of Irish consumers," said Mr Hunt. "Even though inflation is moderating, consumers are getting more and more concerned about it."

As disposable income decreases, consumers begin to compare prices and retailers are forced to squeeze their margins, according to Mr Hunt.

Mr Hunt is forecasting inflation to average at 4.3 per cent for the year, with the rate registering 3.5 per cent at year-end.

The Minister for Finance, Mr McCreevy, has previously predicted an annual average of 4.25 per cent.

Small-business lobby, ISME, welcomed the slight reduction, but chief executive Mr Mark Fielding expressed concern that the trend could be temporary.

Fine Gael finance spokesman, Mr Richard Bruton, said he was disturbed by Government complacency on inflation.

"Spending is racing way ahead of revenue, threatening to undermine Ireland's long-term competitiveness," said Mr Bruton.