Caution and jobless rate tame prices

CONSUMER caution fuelled by slower economic growth, a continued high unemployment rate as well as lower regulated prices will further tame the growth of prices next year, say market analysts, adding that inflation in 2013 will dip well below 3 percent.

CONSUMER caution fuelled by slower economic growth, a continued high unemployment rate as well as lower regulated prices will further tame the growth of prices next year, say market analysts, adding that inflation in 2013 will dip well below 3 percent.

Developments in December 2012 already suggested this trend when the year-on-year inflation measured by the consumer price index (CPI) reached 3.2 percent, down from November’s 3.4 percent, Slovakia’s statistics authority reported. The average year-on-year inflation in 2012 stood at 3.6 percent, which means that last year prices grew 0.3 percentage points slower than in 2011. Core inflation stood at 3 percent and net inflation at 2.3 percent, according to the Slovak Statistics Office.

“The extremely weak harvest of agricultural crops and volatile fuel prices had a significant impact on the development of prices in Slovakia last year,” said Andrej Arady, macroeconomist with VÚB Banka, adding that the decline in prices was slightly more moderate than he had expected.

The country’s central bank, the National Bank of Slovakia, which had expected faster growth in prices than what the actual data in December revealed, said that low consumer demand, which did not grow in any significant way, impacted the development of prices during 2012.

Prices of fruit and vegetables grew faster than the seasonal development suggested, which nevertheless was compensated for by the slower growth of other food products, said Martin Baláž, analyst with the Slovenská Sporiteľňa.

Baláž noted that tobacco prices did not change in December, “which implies that the higher excise tax, which became valid in October, was fully reflected in the prices”. Prices of alcohol beverages have shown a moderate decline as well, he added.

“Inflation was also tamed by the decrease in fuel prices, which declined for the third month in a row,” Baláž said.

Eva Sadovská, analyst with Poštová Banka, sees developments in prices in transportation as well as the cost of alcohol and tobacco as being behind December’s price growth slowdown.

Analyst with UniCredit Bank Ľubomír Koršňák suggested that weakening consumer demand in combination with approaching Christmas discounts probably created increasing pressure for retailers, thus the demand inflation in December slowed from November’s 2.3 percent to 2.1 in December.

Prices in 2013

“In January the year-on-year growth of consumer prices should sharply slow down even more significantly to levels at 2.5 percent, mainly impacted by the slower growth of regulated energy prices,” Koršňák said when commenting on inflation prospects for 2013, adding that inflation could move at these levels for most of the year.

Baláž and Arady do not expect inflation to exceed the 3-percent level in 2013. Yet Sadovská, too, suggests that inflation this year might dip under 3 percent, estimating the average inflation for the year to stand somewhere around 2.8 percent.

“Cautious consumers will continue to tame the growth of prices under the influence of slower economic growth and a continuing high unemployment rate in the country,” Sadovská said. “Changes in regulated prices in energy should not burden our purses more significantly than during last year.”
Sadovská added that electricity prices should compensate for the growth of other utilities and water.

The numbers

Compared to December 2011, the most significant growth in the year to December 2012 was seen in prices in the education sector by 6 percent, food and non-alcoholic beverages by 5.6 percent and health care by 5.5 percent. In the sector of hotels, cafés and restaurants, prices grew by 3.2 percent while housing, water, electricity, gas and other fuels posted price growth at 2.9 percent, the same as recreation and culture. Prices in transport grew by 1.2 percent, according to the Statistical Office.

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