The Consumer Price Index increased by 0.5 per cent in December bringing the annual rate of inflation to 4.2 per cent, according to figures released today by the Central Statistics Office.
The rise of 0.5 per cent compares with an increase of 0.1 per cent in December of last year.
The most significant monthly price increase was in tobacco (up 2 per cent), following an increase in excise duty in the December Budget.
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Transport (up 1.1 per cent) rose due to increases in the cost of motor fuel, as a result of an increase in excise duty in the Budget, and taxi fares, while motor insurance premiums fell marginally.
The price of services rose as a result of higher medical fees and increased charges for education and training, entertainment, hairdressing, video hire and public telephone calls.
Housing costs fell with lower average mortgage interest repayments. However there were increases in private and local authority rents, house insurance and materials for repair and decoration.
"We're seeing a significant budgetary impact here as increases in excise duties on tobacco and fuel kick in," said Mr Austin Hughes, chief economist at IIB Bank in Dublin.
Mr Hughes noted the downward influence of recent cuts in mortgage interest rates in the euro zone but said that domestic services inflation had risen to 8.3 per cent year-on-year, up from 7.4 per cent previously.
"That's ominous," he said. "It's evident there is a battle going on between upward domestic forces and disinflationary influences from abroad. Domestic prices continue to rise."
The CSO said average annual inflation in 2001 was 4.9 percent. Mr Hughes predicted an average annual rate in 2002 of around 4.7 percent - a reduction he described as disappointing given the disinflationary global environment.
Mr Jim Power, chief economist at Friends First, said the effect of the introduction of the euro was unlikely to be strong in January and February as consumer watchdogs kept a close eye on prices.
"However, later I think we'll see the 'rounding up' impact. I'd say this could add one per cent to inflation in the euro zone by the end of the year," he said.
Mr Power forecast an Irish inflation rate of 4.3 per cent by the end of the first quarter but said this would ease over the remainder of the year.
"This is a temporary blip. I remain pretty relaxed about inflation in Ireland and in Europe generally," he said.
On the basis of the European Union harmonised index of consumer prices (HICP), which is used for intra-EU comparisons, prices rose by 0.9 per cent in December from the previous month to give a 12-month rise of 4.4 per cent.
Additional reporting by Reuters