Inflation rose slightly last month to an annual rate of 3.2 per cent, ending a declining trend which had been under way for five months.

Much of the increase appeared to be due to the ending of summer sales and economic forecasters still believe that inflation is set to fall over the coming months.

The latest figures from the Central Statistics Office, published yesterday, showed that the annual rate rose from 3.1 per cent in June to 3.2 per cent in July. This compared to an EU average of 2.3 per cent.

The monthly increase in prices in August was a fairly hefty 0.6 per cent. Two-thirds of this was accounted for by an 8.7 per cent jump in clothing and footwear prices and a 1.3 per cent rise in furnishings and household goods, both probably due to the end of summer sales.

Clothing and footwear prices had fallen sharply early in the summer and last month they were still 2.1 per cent lower than at the same time in 2002.

Other significant monthly increases were in the housing and fuels category - pushed up 0.7 per cent in the month by rising mortgage costs due to higher house prices and rising local authority services charges - and transport costs which rose 0.5 per cent.

Looking at the last year it is clear that most inflation is coming from the services category, where prices have risen by 4.5 per cent compared to a 1.8 per cent increase for goods.

The services increase is driven by strong rises in areas such as health, education and hotels and restaurants. In contrast, inflation in food and non-alcoholic beverage prices is running at an annual rate of just 1.3 per cent.

Rising electricity and postal charges will add to inflation over the coming months but, on balance, most commentators expect the trend to be generally downwards. AIB Group Treasury forecast that the annual rate will fall below 3 per cent by the fourth quarter and average around 2.5 per cent next year, provided there are no hefty hikes in indirect taxes in the Budget.

Mr Jim Power of Friends' First forecasts that the inflation rate cut by running as low as 2.5 per cent by the end of the year.

Meanwhile, in a comment on the figures, Mr David Croughan, chief economist at IBEC, said the monthly rise was a warning "that we still have a long way to go in defeating inflation". He said it was crucial that the Government gives urgent attention to lowering inflation "and does not exacerbate the problem, as it so often has in recent years, by increasing indirect taxes".

ISME, the small business lobby group, also called for no indirect tax hikes in the Budget. It called on the Government to publish details of the anti-inflation strategy promised earlier this year as part of the new partnership programme.

Opposition parties also called for Government action to bring down inflation. Fine Gael finance spokesman Mr Richard Bruton said the Government should be seeking a price freeze in areas such as the ESB, VHI and Bord Gáis, rather than presiding over price increases.

He also called on the Government to commit to greater efficiency and no VAT increases for three years.

Ms Kathleen Lynch of the Labour Party said consumers were bearing the brunt of Government policies and that high inflation had contributed to recent job loss announcements.

A coherent strategy was needed from the Government rather than the "arrogance" of the Tánaiste, Ms Harney's, recent advice to consumers to "shop around", Ms Lynch said.