Changes over previous version
Regulatory body announced sizeable hike in energy prices (gas, heat) for households already as of end-July, which should add 0.5-0.6pp to harmonised inflation during summer, when inflation is going to climb above 4.5% y/y. The hike of energy prices comes earlier than we assumed, lifting our expected HICP average in 2011 to 4.2%. We see a risk of another increase of regulated energy prices at the beginning of 2012. Even with this hike, we expect slowdown of inflation to 3.5% next year. Inflation in the Euro area is likewise expected to decelerate next year, probably to below to the ECB target of 2%. Therefore, our colleagues in Erste Group Research expect the ECB to pause the hiking cycle at 2% in 2012. Our colleagues expect now smaller increase of the German yields, affecting also Slovak government bonds (the spread has widened recently on higher risk aversion related to Greek debt situation but ongoing Slovak fiscal consolidation should help to narrow the spreads in the second half of the year).
