As expected, CPI inflation slowed down in October
- October CPI inflation slowed down from 5.4% y/y to 5.1% y/y, in line with our estimate (the market expected 5.0-5.1%). The main reason for slowdown was the base effect, as food prices grew significantly this time last year, while they stagnated this October.
- On a monthly basis, prices grew by 0.4% in October. Favourable impacts included decline of fuel prices (by more than 3 %, while even more significant fall should be seen in November). Also, we expected slight growth of food prices instead of stagnation.
- At the same time, 10 months since excise tax hike the stock of last year's cheaper cigarettes is running out and long-anticipated impact of higher cigarette prices was finally seen in inflation. So far, only a smaller part of the expected impact made its way into inflation and we expect it to affect inflation in the upcoming months. Imputed rents (fund of repairs in residential housing) again supported inflation, while heat prices grew by 2.5% m/m. Prices of some services also exceeded expectations (especially prices related to education, while prices in hotels and restaurants and in healthcare also grow; harmonized inflation will provide a more detail picture once it is released).
- Based on today's figure, we expect that harmonized inflation might reach 0.3% m/m in October, which would translate into an annual growth of 4.1-4.2% (after 4.5% in September).
- In the upcoming months, we expect slowdown of CPI inflation to below 5% by the year-end (and HICP inflation to below 4% y/y). In the recent months, oil prices declined significantly, which translated into fuel price decline and also decreased the probability that energy prices will be hiked (although we still see non-zero risk, that gas prices for household will grow in January). A hardly-predictable item is imputed rents (it is not in the HICP basket).
