DUBLIN (AP) ¿ Consumer prices in Ireland fell 1.7 percent in February over the past year ¿ the biggest rate of deflation in 49 years, the government Central Statistics Office reported Thursday.

Ireland's turn into deflation began in January with a 0.1 percent drop in the average cost of goods and services and reflects the country's sudden fall into a deep recession.

Ireland last suffered from deflation in 1960. Price falls last exceeded a 1.7 percent rate in February of that year.

On Wednesday, Prime Minister Brian Cowen said Ireland's economy appeared on course to contract by 6.5 percent in 2009. The government previously had forecast a 4 percent decline in GDP this year.

Cowen plans to unveil an emergency budget April 7 that will seek to reduce Ireland's projected budget deficit this year by at least euro4.5 billion ($5.7 billion).

Throughout its so-called "Celtic Tiger" boom years of 1994-2007, Ireland suffered from one of the highest rates of inflation in Europe. A year ago, Irish inflation was still running at 4.8 percent.

Economists said a little bit of deflation is exactly what Ireland needs now ¿ in part because it will undercut labor-union threats to strike over rising taxes.

"Falling prices and lower wage costs should help to make the Irish economy competitive again," said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. "With inflation no longer a threat in the short term, there is no need for the trade unions to be looking for wage increases."

"While an extended period of deflation would be damaging for the Irish economy, the general feeling among analysts is that the current sharp fall in the consumer price index is primarily a result of unprecedented interest-rate cuts and lower energy prices," he said.

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On the Net:

Report, http://www.cso.ie/releasespublications/documents/prices/current/cpi.pdf

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