The High street posted its best year on year growth since December 2004 in the 12 months to August, said the CBI yesterday. Maybe, at last, the High Street slowdown is well and truly over.

Every month the CBI asks its retail members whether sales are up or down. The balance forms its distributed trade index, and for August, the index stood at plus 12 compared to a reading of minus 18 this time last year.

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The grocery and durable household goods sectors achieved the fastest growth in sales. Grocers recorded their strongest balance (57%) since December, while sales of durable household goods, such as flat screen TVs, also showed no sign of abating (51%).

Other sectors achieving an increase in sales included confectioners, tobacconists newsagents, who recorded their first positive balance since March.

As for the future, a balance of 10 per cent expects the overall business situation will improve over the next three months. (For most of last year the balance was in negative territory.)

If you work in retail, or have particular interest in the sector, then by all means take a sigh of relief, but don’t celebrate too much…

There is a negative side to this story. First of all the CBI data revealed that the average selling price rose in August for the first time in two years.

We are also unsure how it is that consumers can afford this pick up in activity. After all, borrowing remains heavy. Consumers were too overstretched to spend much last year, so why do they suddenly feel wealthier? Is this due to immigrants spending, perhaps?

If the British consumer still suffers from a debt burden, then he or she will presumably be vulnerable to changes in the rate of interest. And the Bank of England’s latest rate hike came too late to have a significant effect on the CBI data.

But it’s the bit about High Street prices rising that worries us. Over the last year or so, it has been High Street deflation that has saved the UK. If it wasn’t for the low prices of goods in the stores, then the impact of higher petrol and other energy costs, not to mention rising council tax, would have forced the CPI to a level that would have warranted a much higher rate of interest.

As we have warned consistently, the real danger lies in the possibility that the decade long run of NICE (that’s Non-Inflationary Consistently Expansionary) is over.

And what’s really worrying about this is that it’s completely in keeping with economic theory.

Recent years have seen unparalleled borrowing and consumer spending. The puzzle has been that inflation did not, as a result, take hold, like it would have done in any other era.

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