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Life dearer for Slovaks

AFTER a low level of inflation last year, when the economic crisis curbed Slovaks’ appetite for buying, the rise in prices is now accelerating. Prices grew by 4.0 percent over the last year to the end of May, an inflation rate that was last recorded in Slovakia in 2008. Soaring prices for food are particularly being pinpointed for blame.

AFTER a low level of inflation last year, when the economic crisis curbed Slovaks’ appetite for buying, the rise in prices is now accelerating. Prices grew by 4.0 percent over the last year to the end of May, an inflation rate that was last recorded in Slovakia in 2008. Soaring prices for food are particularly being pinpointed for blame.

The inflation rate in May and the jump in food prices prompted former prime minister and current opposition leader Robert Fico to describe the rate of 4 percent as breaking through a psychological barrier and called for a special parliamentary debate and for ‘action’ to be taken.

“The cabinet has to say something because it has so far only contributed to the increase in prices,” Fico said, as quoted by the SITA newswire on June 13. He called on the ruling coalition parties to debate the increase in prices rather than the selection of the next general prosecutor. According to Fico’s Smer party, the 4-percent inflation rate confirms that Slovakia has an ineffective government that is taking the wrong path.

The government of Iveta Radičová cited influences beyond its control as being behind the current growth in consumer prices, particularly poor global harvests that have put pressure on food prices as well as rises in the price of crude oil and related products.

“Maybe only the Smer chairman is able to order the weather and hedge prices of crude oil,” Martin Jaroš, spokesperson for Finance Minister Ivan Mikloš, said in response to Fico’s statements, as quoted by the TASR newswire. Jaroš added that the government’s policies were necessary to revitalise Slovakia’s economy – he cited as an example what he called ‘the Fico tax’, the increase in the value added tax from 19 percent to 20 percent, adding that the VAT increase had contributed very little to higher consumer prices.

“What a real social government does is create conditions so that people can find jobs more easily, secure regular income and also, thanks to this, can more easily deal with inflation,” said Jaroš, adding that in these terms developments have been better than expected: during the first quarter of 2011 he said 33,000 new jobs were created.

The year-on-year growth in consumer prices accelerated from April’s 3.7 percent to 4.0 percent in May. Compared with April, prices in May grew by 0.3 percent, a decrease from the March-to-April rate of 0.4 percent, the Statistics Office announced on June 13. After the lowest inflation rate in Slovakia’s recent history in 2010, at 1 percent, due partly to a steep fall in consumer spending because of the economic crisis, inflationary pressures are increasing once again.
The May figure did not come as a big surprise for bank analysts, who had predicted higher price levels this year.

“Life started getting more expensive, at a rate of 4 percent [a year], for Slovaks as early as May, a bit earlier than originally expected,” Eva Sadovská, an analyst with Poštová Banka told The Slovak Spectator. “But we would not call 4 percent a psychological barrier since we were expecting that this level would be reached this year and we expect growth of consumer prices at a similar level to continue for the whole year.”

The Hospodárske Noviny daily pointed out that Slovaks last experienced passing this ‘psychological barrier’ in late 2008, during the government of Robert Fico and wrote that he had taken no action to curb inflation at the time.

The commodities that increased most in price year-on-year in May were food and non-alcoholic beverages, increasing by 7.4 percent. Prices for transportation followed, with 6.3-percent growth, while the price of housing and various forms of energy went up by 4.4 percent year-on-year.

These price increases are having a painful effect on Slovak households because Sadovská pointed out that Slovak households spend the largest amount each month on food and housing and Slovak families also spend significant sums on transportation.

“These groups of goods will become more expensive this year and thus also affect most of our household budgets,” said Sadovská, adding that compared with April Slovaks also paid more for clothes and footwear. “Clothes and footwear are also more expensive on a year-on-year comparative basis, now for the second consecutive month. After two years of decreasing prices for clothes and footwear, an increase in prices for these goods was registered for the first time in April.”

Sadovská sees the austerity measures of the Radičová government as partially lying behind the growth in prices this year as well as higher regulated prices introduced at the start of the year, but said that the rises were mainly due to to changes in commodity prices on world markets.

“Prices in the year-on-year comparison were higher not only for crude oil but also for many agricultural commodities, which were higher by tens of percentage points, affecting especially prices for food,” said Sadovská, adding that the price of cotton, which affects the price of clothes and footwear, surged to an all-time high.

Other economists also expect continued growth in consumer prices. According to Poštová Banka and UniCredit Bank Slovakia, the autumn months will bring further acceleration in inflation.

“The growth in prices will continue to depend on developments on global commodity markets,” Sadovská said. “But a question mark also hangs over the approval of higher regulated prices, for example, for natural gas. Another rise in these prices might increase inflation to higher than currently expected levels. For now we expect annual average inflation to be from 3.9 to 4.0 percent.”

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