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Inflation exceeds EU average

INFLATION has joined exhausted treasuries and climbing jobless rates on the list of worries for many European Union countries.

INFLATION has joined exhausted treasuries and climbing jobless rates on the list of worries for many European Union countries.

Prices in Slovakia are now growing as fast as they did during the pre-crisis period, and in March inflation touched its highest level since November 2008: 3.8 percent year-on-year, as measured by the EU’s methodology, the harmonised index of consumer prices. Inflation in Slovakia was higher than the EU average of 3.1 percent, and the 2.7-percent average across the eurozone. Neighbours Hungary and Poland posted higher inflation rates than Slovakia, while the rate in the Czech Republic was lower.

Recent developments in commodity markets, where prices for some food products are approaching their 2008 peak, have prompted concern about the eventual impact on prices in Slovakia. Market watchers predict annual inflation will approach 4 percent in the medium term, and could jump well above that level in individual months.

However, market watchers also suggest that the development of inflation in Slovakia has specific causes.

“Slovakia last year recorded a very low inflation rate; the Slovak government adopted a package of consolidation measures and regulated prices have been hiked,” Eva Sadovská, an analyst with Poštová Banka, told The Slovak Spectator.

“These factors, which have a pro-growth influence, are making us different from other economies and caused a jump in inflation at the beginning of this year.”

Nevertheless, the main reason for the growth in inflation is the rise in commodity prices on world markets, which has affected prices in all economies in the same way, she added.

“The rapid growth of the prices of food commodities on world markets has to a certain degree been included in the prices of goods, and in some cases this has yet to happen,” Sadovská said.

Meanwhile, World Bank President Robert Zoellick warned in mid-April that current world prices for food products are 36 percent higher than at the same point last year. The overall price growth is also being fuelled by turmoil in North Africa and the Middle East.

Slovakia’s numbers

The cost of alcohol, tobacco and food climbed fastest in March, with annualised inflation accelerating from 3.3 percent in February to 3.6 percent in March, as measured by the Slovak Statistics Office, which uses national methodology.

“As in previous months, the main factor behind the speeding inflation was the growing prices of food and fuel, which was in line with expectations,” said Eduard Hagara, senior research analyst with ING Bank.

Hagara, however, noted that statistics already show that the growth of these prices is starting to affect other categories of goods and services. He suggests that this could be a reflection of higher costs, but may also be down to the delayed effect of the new-year rise in value added tax.

“Retailers had two difficult years during which they had to deal with low consumer demand and cheap competition from neighbouring countries,” Hagara explained, adding that he expects inflation will approach the 4.0-percent level this year.

Sadovská increased her prediction for inflation in Slovakia, forecasting that it will end up being around 3.8-3.9 percent for the whole year.

Sadovská also said that she expected inflation would breach the 4-percent level for several weeks.

“We have already experienced the largest jump,” Sadovská said, adding that the most significant month-on-month growth, in January, is now behind Slovakia. “We expect that month-on-month the prices of goods will continue to grow by a couple of tenths of a percent, similar to developments in February or March.”

Boris Fojtík, an analyst with Tatra Banka, stressed that food-price inflation contributes more than a third of the whole year-on-year increase in prices.

Food products, along with beverages, are 7 percent more expensive when compared to last year, Fojtík said. Transportation prices come second in the price-growth race, up 6.2 percent year-on-year. In third place come prices for education, rising 4.4 percent – but Slovaks are, on average, low spenders on education, according to Fojtík.

“Since the development of inflation in the eurozone is similar, the European Central Bank (ECB) has started reducing the expansiveness of its monetary policies, and in order to slow down the development of prices it carried out its first hike in the basic interest rate in almost three years,” Fojtík said. “In Slovakia, as in the eurozone, we expect inflation to peak in the middle of the year, followed by a moderate slowdown in the growth of prices.”

However, Fojtík added that other factors, such as natural disasters that threaten agricultural production, could undermine this scenario.

Andrej Arady, economist with VÚB Banka, noted that regulated prices recorded only 0.1-percent growth, similar to February, and said their share of the month-on-month growth in consumer prices was only minimal.

“Within the ‘core’ goods, the prices of which aren’t regulated, food and fuel have recorded the fastest growth, but compared to last month the prices of alcohol and tobacco have also joined them, growing 1.5 percent compared to the previous month,” Arady said.

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