And the move was quickly followed by cuts in the price of own-brand milk and butter by Tesco Ireland, sparking hopes of a price war for household staples.
Effective immediately, Lidl said the price of a standard two-litre carton of milk will drop to €2.25.
The discounter said a 454g (1lb) block of Irish Creamery Butter will be reduced from €3.39 to €2.99.
The retailer is dropping the prices on 15 dairy products.
And Tesco is cutting the price of its own-brand Irish Creamery Butter (454g) by 40c to €2.99.
The price of a pound of butter had approached €5 in the past few months, according to Central Statistics Office inflation figures.
Two litres of Tesco Fresh Milk will have a price drop of 10c to €2.25.
Price cuts will be welcomed by shoppers.
Today’s News in 90 Seconds, Thursday March 26
Tesco said the price reductions apply immediately online and will be live in Tesco stores tomorrow morning.
International dairy prices have been stagnant since last August, farming sources said.
The hope now is that other retailers will match the price cuts at a time when grocery inflation is close to 7pc, according to supermarket analysts Worldpanel.
There are also fears that grocery inflation could surge higher due the war in the Middle East.
This means that Lidl, and other retailers, are likely paying less for the milk and butter they sell
Lidl said in a statement: “In Ireland, milk and butter prices are determined by a combination of international commodity market and global supply and demand dynamics.”
Lidl Ireland and Northern Ireland chief executive Robert Ryan said the retailer won’t be beaten on price.
“We’re proud to once again lead the market by dropping the price of milk and butter, passing savings directly on to our shoppers. We remain dedicated partners to the Irish agricultural community, ensuring that as we deliver value to shoppers, we continue to support the long-term viability of the local producers who supply our 100pc Irish milk and butter.”
The Lidl dairy milk and butter price cuts are coming as grocery prices are set to soar by up to 10pc due to the war in the Middle East.
Retail expert Damian O’Reilly said this would see families having to spend up to €700 more a year to feed themselves.
Mr O’Reilly, a senior lecturer in retail management at TU Dublin, said higher oil prices feed into higher grocery prices with a lag of a few months.
He said this means prices on the supermarket shelves will start rising even more than they are currently in the next two to six months.
Mr O’Reilly based his prediction on an analysis of data on crude oil price spikes and how that feeds into inflation.
The cost of filling a shopping trolley will jump anywhere between 8pc and 10pc, he said.
This would mean shopping costs would go up by between €50 and €60 a month, or up to €720 over a year.
He said if crude oil prices stay above $100 that will feed into higher grocery prices.
An average household will see an increase probably of around €50 to €60