CPI moderated to 7.4% y/y
August brought expected inflation slowdown, still surprising slightly on the positive side. On the monthly side pressures slowed down as priced declined by 0.3%. Fuel prices decline have been behind moderating pressures as transportation prices declined by 3.4% m/m and housing, water, electricity, gas other fuels prices lowered 0.9% m/m. On top of that clothing and footwear prices still supported by seasonal sales effect eased 1.3% m/m. Food and nonalcoholic beverages remained under some pressure accelerating 0.4% m/m, while also recreation and culture prices (+1.7% m/m) due to newspaper prices hikes have put some pressure. In the upcoming months we see declining likelihood of negative pressures from the supply-side and are expecting that pressures should to some extent moderate further. Hence, we stick continue to stick with current average CPI forecast of 6.6% for 2008 and continue to see inflation moderating to below 6% threshold towards the year-end as strong base effect would unwind. We continue to see CNB adopting wait and see strategy in the upcoming months in order to see inflationary trends. Currently we see decreasing likelihood of further monetary tightening as supply-side developments are giving some positive signs, while also stronger exchange rate should offset proportion of inflationary pressures. Finally, we do not expect significant reaction from the markets as investors would most likely want see some additional evidence of inflation slowdown given the currently negative real interest rates on the bond market.
