Prices fell again last month to bring the annual rate of inflation to -5.4 per cent, according to data from the Central Statistics Office (CSO).
Prices have been falling since January and the cost of living, as measured by the consumer price index (CPI), declined by a further 0.3 per cent last month. The annualised fall is the biggest since May 1933.
Prices fell at an annual rate of 4.7 per cent in May.
The monthly EU Harmonised Index of Consumer Prices, which strips out the impact of mortgage rates, was flat last month, but is now down 2.2 per cent compared to June 2008.
The most significant declines over the year was a 25.6 per cent fall in housing costs and a 12.2 per cent reduction in clothing prices.
Services prices fell 5.6 per cent in the year to June while electricity, gas and other fuels were 1.6 per cent lower.
The main deflationary momentum has come from lower mortgage interest costs following a series of rate cuts by the European Central Bank (ECB) since last October.
Alan McQuaid, economist with Bloxhams Stockbrokers, said the last time prices fell as steeply as the last six months was during the Great Depression.
He noted that there were price increases last month with petrol and diesel and car and home insurance prices all rising.
Mr McQuaid said in the longer-run, “deflation remains a bigger threat than inflation” for the Euro zone economy and for Ireland in particular.
“In Ireland, falling nominal wages and profits will raise the real value of existing debts, increasing the need for a more prolonged period of deleveraging and raising the chance of a sharper rise in banks’ bad loans.”
He said because the private sector indebtedness is equal to around 175 per cent of GDP, “a period of deflation could have a particularly negative impact on the Irish economy.”
Simon Barry, senior economist at Ulster Bank said "the downturn the Irish economy has faced has been more severe than any other industrialised country, you would therefore expect underlying (downward) inflation pressures to be more intense".
Responding to the figures, Fine Gael deputy leader Richard Bruton said the Government was operating in a parallel universe.
“Inflation has fallen continuously since last October, but prices for Government-administered and regulated services continue to rise,” he said. “Fianna Fáil is clearly not committed to restoring competitiveness and ending the rip-off of Irish taxpayers.”
