Consumer price inflation - published by the Slovak Statistical Office this morning - eased significantly to 3.7% y/y in October from 4.6% y/y in September. The main reason was a base effect, since energy prices rose significantly in October last year.

 Although inflation dropped significantly in October, we and the consensus had expected inflation to come out even lower (consensus forecast: 3.6% y/y). Therefore, today’s outcome raises the question of whether the Slovak central bank (NBS) is satisfied with inflation trends or whether it believes monetary policy needs to be tightened further. However, the latest comments from the central bank - specifically from Governor Ivan Sramko, sounded fairly dovish, stating that the NBS should be able to comfortably reach the desired level of inflation - with room to spare in 2009.

 Nevertheless, we still see some inflationary pressures in the Slovak economy, and so we continue to see a need for tighter monetary conditions. We therefore expect the NBS to deliver additional tightening of 25bp, either in November or December.