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Slovakia: March inflation

Fri, Apr 11 2008, 09:22 GMT
by Mária Valachyová

Erste Bank der oesterreichischen Sparkassen AG

• 1. CPI inflation reached 0.3% m/m in March, putting the annual growth to 4.2% up from 4.0% in February. That matched our forecasts and was a notch above the market consensus at 4.1%.

• 2. The structure of inflation was broadly in line with our expectations – the main driver were heat prices (which increased by 1.3% m/m as of March) and food prices, which rose by 0.3% m/m, a bit more than we assumed. Imputed rents increased in line with our forecast by 0.7% m/m.
  

• 3. The food prices continue to pose the main risk to our inflation forecast as the prices of rise and wheat products increased in April. Please note that the food price growth is not necessarily a threat to Slovakia’s euro adoption in discussion about price sustainability, as this phenomenon is shared with other EU countries. Prices of energies should not rise further in coming months, as there was no hike announced by the regulator.

• 4. Today’s CPI figures suggest that harmonized inflation could be a notch higher, at 3.6% as compared to our pre- CPI forecast of 3.5% y/y. However, our forecast of 12-month HICP average remains unchanged at 2.2% and will be comfortably below the Maastricht limit. Convergence criterion stood at 3.1% in February and might increase further to 3.2% in March. That means that Slovakia will meet inflation criterion with a sizeable buffer of about 1pp. While discussions about sustainability are possible, with such a big cushion, Slovakia should get a nod to adopt euro.
  

• 5. Demand inflationary pressures remain contained, although our measure of demand-driven inflation (CPI ex regulated prices, taxes, food, fuel and imputed rents) slightly increased to 1.9% y/y from 1.8% in February.
  

• 6. Today’s CPI figure has a little monetary policy implication. The central bank will keep its wait-and-see stance and after Slovakia gets green light to adopt the euro, we expect harmonisation of the interest rates to the level prevailing in the Euro area (i.e. to 4.0% from Slovak level of 4.25%).
  

• 7. Also today, the February foreign trade balance was released and reached a SKK 8.3bn surplus, well above average market and our forecast for a broadly balanced trade. As compared to our forecast, export growth was faster than we assumed at 24% y/y. The structure is not known yet but judging by industrial production data, the sectors of car production and machinery were the main drivers. After today’s figure we might revise our full year estimate from SKK -4bn towards a surplus.

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Published on  Fri, Apr 11 2008, 09:31 GMT

Archive

• Slovakia: 2Q08 GDP growth
  Published On Wed, Sep 3 2008, 09:43 GMT
• Hungary: Industrial output, June 2008
  Published On Wed, Aug 6 2008, 16:50 GMT
• Hungary: Nominal wages
  Published On Thu, Jul 17 2008, 11:01 GMT
• Croatia: June 08 CPI Inflation
  Published On Tue, Jul 15 2008, 13:41 GMT
• Slovakia: June consumer inflation
  Published On Thu, Jul 10 2008, 13:29 GMT

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Erste Bank http://global.treasury.erstebank.com | Rainer.Singer@erstebank.at