By Marcus Leach

Following a surprise rise in the annual rate of inflation in July, which saw the rate reach 2.6%, it has fallen back to 2.5% in August, as measured by the Consumer Prices Index (CPI).

Official data released today (Tuesday) by the Office for National Statistics (ONS) showed that the Retail Prices Index (RPI) inflation measure, which includes housing costs, fell to 2.9% in August.

“Although inflation is once again falling, the disparity between prices and wages will remain the key spread that needs closing through the second half of the year - so as to relive consumer demand," Jeremy Cook, chief economist at foreign exchange company, World First, said.

“The danger with the relationship between inflation and the High Street at the moment is that falls in CPI are likely to be a result of heavy discounting in order to tempt punters in.

“Q2 was characterised by people holding off on spending in the run-up to the Olympics.

“We believe the anecdotal evidence will suggest that stores had to carve up margins to entice people through the door, and corporate earnings from retailers who were not directly affected by Olympics (hotel, restaurants, transport) may struggle.

“These figures do nothing to alter expectations of a slow grind for the UK economy through to the end of 2012.”

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