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Slovakia: Inflation accelerated to 4.8% in July

Tue, Aug 12 2008, 09:39 GMT
by Michal Musâk

Erste Bank der oesterreichischen Sparkassen AG

• - CPI inflation accelerated from 4.6% in June to 4.8% in July. On a monthly basis, the prices increased by 0.1%. The figure was exactly in line with our expectations (similarly, the market predicted 4.8% inflation) but the structure was partially different. Food prices had a favourable impact on price level. On the contrary, monthly inflation was driven by imputed rents and the development of other goods and services (besides energy and food) also surpassed our forecast. Contrary to our assumptions, the figure does not yet include higher taxes on cigarettes.
  
• - After a longer period of negative development July brought a slight decline of annual food price growth (which still stays near 10% y/y though). The decline of food prices compared to June was expected (in summer months, particularly vegetable and fruit prices fall), but the monthly drop by 1.2% was yet somewhat steeper than is common for this part of year.
  
• - Other deviations from our forecasts were negative, as imputed rents increased. Also, despite media news that the stock of last year's cigarettes (with a lower excise tax) is running out, July inflation showed no change in prices of tobacco products. Our assumptions included this impact partially (about 0.1pp contribution). Hence, the released figure is slightly negative for inflation outlook, as the higher cigarette tax will show up in one of the upcoming months. Hence, compared to our assumptions, prices of other goods or services (ie besides energies and food prices) increased more than we expected. Our measure of demand inflation increased from 2.3% in June to 2.5% in July. More can be seen in HICP inflation, which is released in a more detailed structure (after today’s figures, we expect it at 0.0% m/m and 4.4% y/y).
  
• - In the coming two months, the annual inflation could slightly slow down (in August, we expect CPI inflation at 4.7% y/y). Summer decline of food prices should continue. Contrary to July, when fuel prices grew, August should feature the impact of recent oil price decline. On the other hand, abovementioned more expensive cigarettes should push inflation up. We expect the year-end inflation around 4.8% y/y. The biggest unknown is prices of gas and heat, as energy price growth has become a political rather than economic issue to a considerable degree. Still, global oil prices are much higher compared to the time, when energy prices were last adjusted (recent oil price decline only partly alleviated this pressure).

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Published on  Tue, Aug 12 2008, 09:42 GMT