December inflation slowed down significantly to 4.4%
- The annual price growth slowed down significantly from 4.9% in November to 4.4% in December. Released figure was below our 4.8% forecast and market consensus at 4.7% y/y. On a monthly basis, prices declined by 0.2%.
- As expected, fuel prices declined (reflecting oil price decline at the world market) but somewhat surprisingly, food prices also reported a 0.1% monthly decrease, while our expectation was a mild growth (which is typical for this part of the year). The annual food price growth slowed down from double digits in summer to 2.5% y/y. Contrary to our estimates and significant increases in the previous months, imputed rents stayed unchanged in December.
- Inflation slowdown also reflects recession in the Eurozone and the US, which means lower worldwide commodity prices and as a consequence, cheaper fuels and food in Slovakia. Partial data also indicate mild slowdown of demand pressures in Slovakia.
- On Thursday, December HICP inflation is due out, that should slow down from November's 3.9% y/y to 3.5%. On a monthly basis, we expect a decline by 0.1%.
- Beginning of this year should bring slowdown of CPI inflation to 3.5-4.0% y/y. It will be interesting to see the response of traders to euro introduction. Based on experience of countries that joined the Eurozone in the past, the impact of "rounding" should not exceed 0.3pp in our view. On the other hand, January is a month, when traders (even when there is no currency switch) more frequently reprice their goods and take into account change of costs over the previous period.
