Inflation slows by less than expected

THE Consumer Prices Index (CPI) dropped to an annual rate of 1.6 per cent in August, compared to 1.8 per cent in July, according to official statistics released yesterday. <br /><br />But the Retail Prices Index, which includes mortgage interest payments and housing costs edged up from -1.4 per cent to -1.3 per cent.<br /><br />The City had expected the CPI measure to slow to 1.4 per cent and still expects it to fall to near one per cent in September.<br /><br />Capital Economics&rsquo; Vicky Redwood said that with large amounts of spare capacity building, inflation is set to fall to very low levels in the near future. <br /><br />Bank of England governor Mervyn King said that inflation was &ldquo;likely to be volatile&rdquo;over the next few months.