The rate of annual inflation remained unchanged at 6.2 per cent in August but there were warnings yesterday that it will accelerate to 7 per cent over the coming months.

The stable price levels were welcomed by the Cabinet but unions raised new questions about the future of the Partnership for Prosperity and Fairness.

The prospect of further increases in the consumer price index was heightened by imminent petrol and oil price rises will put further pressure on inflation in the coming months along with a continuing weak euro. Petrol and home heating oil will increase by between 3p and 4p a litre from today, while Shell has announced a 3p rise in the cost of diesel. Recent mortgage rate rises, following the latest increase from the European Central Bank, will also feed into the figures.

Prices rose by 0.5 per cent in August as a fall in petrol costs and a freeze on the price of alcohol helped cap rising prices. However, increasing prices of clothing and footwear and rents boosted the figures.

Mr Austin Hughes, economist at Irish Intercontinental Bank, warned that the respite will be short lived and that inflation is set to accelerate to 7 per cent. He also warned that there is now a danger that inflation will become entrenched at very high levels into next year.

The Labour party spokesman on finance, Mr Derek McDowell, said the figures were further evidence that the Government's economic strategy was seriously flawed. He pointed out that young people and those on fixed incomes were worse off than last year.

The Conference of Religious in Ireland (Cori) justice spokesman, Fr Sean Healy, also challenged the Government's strategy. He called for those on fixed incomes to receive the same rise in take home pay as those with jobs.

Mr McCreevy will welcome the drop in the EU-measure of inflation to 5.7 per cent from 5.9 per cent as it does not include house price increases.

Nevertheless, he is coming under pressures from the unions. The ICTU general secretary Mr Peter Cassells said the recently negotiated Partnership for Prosperity and fairness is under "enormous strain" as living standards are eroded.

The most significant monthly increases were in clothing and footwear which was up 4.2 per cent following the end of the summer sales and durable household goods such as washing machines up 1.5 per cent. Housing was up 1.3 per cent with increases in private rents and monthly mortgage repayments.

Food also continued to rise more rapidly than elsewhere in Europe at 0.4 per cent in the month. Dr Dan McLaughlin, chief economist at ABN Amro, pointed out that the category fell 0.8 per cent in the UK in August. Overall for the year, the largest price pressures were tobacco up 17.5 per cent, housing up 11.1 per cent, transport up 8.1 per cent and fuel and light up 7.9 per cent. There were few offsetting price drops, although clothing and footwear is down 5.1 per cent compared to last August.