CPI inflation accelerated in August due to imputed rents

  • - Consumer inflation accelerated in August to 5.0% y/y (up from 4.8% in July), exceeding our and market expectations. We assumed that the headline inflation could decline for the first time in a year to 4.7% y/y (this view was also shared by the market). However, a sharp increase in imputed rents kept inflation on its upward path. As expected, food prices declined thanks to summer season, as new crop is making its way into shops (especially prices of vegetables and fruits usually decline during the summer months). Stocks of last year's cheaper cigarettes have not been depleted yet, as inflation figures still lack the effect of higher excise taxes. The more expensive cigarettes will therefore show up in the CPI figures in the coming months. 

  • - Imputed rents went up by 4.1% on the month. When calculating imputed rents, the Slovak Statistical Office uses the payments to the funds of repairs. Therefore, it is not possible to say whether increase was related to higher prices or whether it was due to larger investments, such as to enhance energy efficiency of flats (theoretically, the latter should not be included in inflation figures, as they decrease future energy costs). 

  • - As tobacco prices did not increase and imputed rents are not included in harmonised inflation, we expect the August HICP to decline by 0.1-0.2% on the month (it will be released on September 16). Annual harmonised inflation should reach 4.3-4.4 % in August (instead of our pre-CPI forecast of 4.4-4.5%).

  •   -Today's figure led to increase of our year-end CPI inflation estimate from 5.0 % to 5.2%. Imputed rents still pose a risk to the prognosis. But the major uncertainty affecting the estimate continues to lie in energy prices, as the possible gas price hike may range between 0% sought by the government and nearly 20% demanded by the distributor. The difference in CPI inflation impact between these two scenarios is as much as 0.9pp (our working assumption expects 10% growth). Today's figures increased harmonized inflation outlook only slightly and we expect HICP inflation to reach 4.3-4.4 % in December.