Inflation stagnated at 4.6% in June, driven by food and oil prices
- Consumer inflation stayed at 4.6% y/y in June, meeting market expectations. We expected a notch lower figure at 4.5% y/y. As compared to May, the prices increased by 0.4%, fuelled mainly by food and oil prices.
- The key drivers - food and fuel prices - rose by 0.7% and 2.3% on the month, respectively, in line with our forecasts. Imputed rents, which increased by 0.7% m/m where the item, which caused the difference between our CPI estimate and the real figure. As the imputed rents are not included in harmonized inflation, we maintain our earlier estimate of June HICP at 4.2% y/y (hence, Slovakia should keep meeting the Maastricht inflation limit).
- Outlook: Consumer inflation should stay in range of 4.6-4.9% y/y in the second half of the year in our view (among up-side factors we reckon the prices of cigarettes and increase of energy prices in autumn, while the strong koruna should work as anti-inflationary tool). At the beginning of 2009, we expect consumer inflation to drop to below 4.5% y/y and HICP to around 4.0% y/y.
- Implications: Inflation stays driven mainly by external costs (namely food and oil prices), which are out of the scope of CB monetary policy. In addition, the strong koruna should work as an anti-inflationary factor in the coming months. As the ECB hiked its interest rates by 25bp in July (the key rate was brought up to the Slovak level of 4.25%), the Slovak central bank can leave rates unchanged until the year-end, unless the ECB changes its rates by that time (which is not likely in the view of Erste Bank house). In such case, the NBS should only narrow the overnight rates corridor to a standard +/-100bp (which should not have any significant market impact).
