June inflation lower than market expectations

THE INFLATION rate in June was below market expectations. Analysts expected consumer prices in June to grow at a moderately faster rate than the 4.8 percent recorded in May. However, consumer prices grew only by 4.5 percent the Statistics Office reported on Wednesday.

"The main reason for the lower than expected inflation rate was the fact that the increased excise tax on cigarettes has still not been reflected in prices," Slovenská sporiteľňa bank analyst Mária Valachyová told SITA.

ING Bank analyst Eduard Hagara says that from a structural point of view the fact that motor fuel prices decreased by 0.3 percent on a month-on-month basis was not surprising. On the other hand food prices did not grow at as high a rate as in the previous month. The ING analyst points out that the June data did not show any significant demand pressures on inflation. Energy prices contributed about two percentage points to inflation, said Hagara.

He sees the most significant inflation risks in higher oil prices, a weaker crown and the potential for a looser fiscal policy of the new government.

"We expect inflation could reach 3 percent at the end of 2007, which is significantly higher than the 2-percent target set by the central bank. This could represent a risk in fulfilling Maastricht criteria," he said.

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