Price development
We expect consumer prices to have increased in October by mere 0.1-0.2% on the month, mainly due to increase in tobacco prices and prices of some services. That would bring the annual inflation rate further down to 0.4% and harmonized inflation rate could dip below zero (likely only for few months though). As we wrote earlier, increase in tobacco excise taxes should add 0.35pp to the harmonized inflation during October and November (cigarette prices should increase by some 12% in the respective period).
Real economy
Following exceptionally strong monthly increase in August, we expect correction of industrial production in September. We explain part of the strong August increase by a shift in the timing of holidays at some big producers (one-off), next to that, declining industrial sentiment suggests somewhat weaker demand in September. Monthly (seasonallyadjusted) decline together with less favorable base as in August should deepen the annual decline of IP from -6 % in August to around -13 % in September.
On Friday, the preliminary estimate of 3Q09 GDP growth will be published. We expect that the economy grew compared to the previous quarter on a seasonally adjusted basis (based on the q/q growth of industrial production, as well as sales from selected sectors). However, as the economy still grew solidly in the same period of last year, the annual GDP decline will likely be similar to the second quarter (after 5.3% y/y decline in 2Q09, we expect fall by 4.9% y/y in 3Q09).
Monetary policy of ECB
ECB's key interest rate remain at the historical low even after early November's meeting (1.0%). Comments by the ECB President J-C Trichet following the meeting seems to have sugegsted that the ECB will not prolong the 12M refi tender beyond the third tender planned for December (final decision to be taken in December). The ECB might provide the liquidity in shorter tenders instead (3M and 6M). We expects rate hikes to come only in 3Q10.
