Mortgage-holders are likely to benefit from a cut in interest rates within the next few months after the European Central Bank (ECB) softened its stance and acknowledged the gloomier economic outlook for the euro zone.
Pressure on consumers' pockets also eased last month, as the Republic's annual rate of inflation fell to 4.3 per cent, down from 4.7 per cent in December, according to the Central Statistics Office (CSO). However, Fine Gael finance spokesman Richard Bruton, said the lower inflation was "a double-edged sword", as it pointed to growing weakness in the Irish economy.
Sharper than usual discounts in the January sales, which saw clothing and footwear prices fall almost 13 per cent last month, provided one of the main drivers behind the lower inflation rate, as retailers sought to convince nervous consumers to part with their money.
Alan McQuaid, economist at stockbroker Bloxham, described the drop in the inflation rate as "the one bit of good news" for the economy in recent weeks.
But the cost of household essentials such as food and heating oil continued to climb.
The cost of food has increased 6.7 per cent in the past 12 months, as a result of a global surge in commodity prices, while persistently high oil prices have forced up home heating oil costs by 32 per cent in the last year.
There was also a 2.9 per cent rise in the cost of health services last month, following an increase in hospital charges.
The standard measure of inflation in the EU, known as the harmonised index of consumer prices, fell to 3.1 per cent in the Republic in January, taking it below the EU average for the first time since December 2005.
The CSO's consumer price index, which includes the cost of mortgage interest in its typical basket of goods and services used by consumers, averaged at 4.9 per cent last year, with the rate driven up by a series of interest rate rises by the ECB.
The ECB's main interest rate, which increased from 2 per cent to 4 per cent between December 2005 and June 2007, had been expected to rise again.
However, pressure on the euro-zone economy means that a cut in interest rates is now more likely in order to stimulate economic growth.
Although he did not explicitly mention the prospect of either a rate rise or rate cut, ECB president Jean-Claude Trichet cleared the way yesterday for lower interest rates by doing nothing to correct expectations in financial markets of a quarter percentage point rate cut in April, or even earlier.
"Uncertainty about the prospects for economic growth is unusually high," he said.
His comments came just hours after the Bank of England cut UK interest rates by a quarter of a percentage point to 5.25 per cent, citing the deteriorating outlook for global growth.
So far, the ECB and the Bank of England have resisted copying the emergency steps taken by the US Federal Reserve to boost economic growth and Mr Trichet warned that a US-style fiscal stimulus package was not warranted in the euro zone.
Mr Trichet has softened his tone since the last ECB meeting in January, when he had warned of a possible "pre-emptive" interest rate increase to head off inflationary threats posed by wage deals.
Employers' group Ibec yesterday warned that the "challenging" global and Irish economic conditions must be recognised by all parties in the upcoming wage negotiations.
But Irish Congress of Trade Unions economist Paul Sweeney said it appeared that the higher food and fuel prices were "sticking" and shrinking workers' disposable incomes.
