DUBLIN, Ireland (AP) — Ireland faces a challenge to remain economically competitive, the prime minister warned yesterday after the release of inflation figures showing a slight drop to 5.0 percent — still more than double the European average.The drop from April's figure of 5.1 percent annual inflation was in line with forecasts.

Economists warned that Ireland was growing too expensive for the foreign companies that have flocked here over the past 13 years. They cited Ireland's Europe-leading cost of energy as a critical problem.

Prime Minister Bertie Ahern took the unusual step of responding personally to the inflation figures — and called for new negotiations between business and labour-union leaders to control wage rises.

"It is clear that we are entering a period of more challenging economic conditions," said Ahern, who has championed national wage pacts since 1987 as the best way to deter strikes and make Ireland an attractive European base for US investment.

He called for new government-brokered talks between the Irish Business and Employers Confederation, which represents 7,000 businesses, and the Irish Congress of Trade Unions "to restore and renew our competitiveness across all dimensions."

Turlough O'Sullivan, director general of the Irish Business and Employers Confederation, urged unions not to seek higher wages.

"The recent spike in inflation has been damaging for both consumers and business, but it is now critical that we do not do anything that will add further to inflationary pressures in the economy," O'Sullivan said.

David Begg, general secretary of the Irish Congress of Trade Unions, said workers' wages had fallen unacceptably behind inflation. He called on the government to raise its tax break for mortgage holders and to cut its national sales tax of 21 percent.

The average inflation rate across the 13-nation region that uses the euro currency and includes Ireland was 1.9 percent in May.

Yesterday's report from the Central Statistics Agency found that the biggest riser over the past year has been property mortgages, up 46.5 percent. That reflected a series of quarter-point interest rate rises by the European Central Bank, which is responsible for controlling inflation in the euro zone.

Such rises have finally started to affect Ireland, where more than a decade of property speculation has quadrupled the cost of many homes, particularly in the increasingly cramped capital, Dublin.

Ireland has suffered continent-leading inflation for much of the past decade. Economists agree Ireland would have benefited from much higher interest rates to slow down the property boom and keep other prices better in check.

The report also found the cost of utilities, including electricity, natural gas and telephones, rising 9.3 percent annually.

Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said the government needed to do more to control the cost of electricity and natural gas being supplied to employers by state-controlled utilities.

"High energy costs have been cited recently by Irish-based US multinationals as one of the key negatives about doing business here, with Ireland in effect going from having the lowest to the highest energy costs in Europe over the past decade or so," McQuaid said. "That trend cannot go on indefinitely if the Irish economy is to continue to thrive over the medium to long term."