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Inflation slowed in February

PRICE growth in Slovakia slowed in February. Analysts attributed the slower-than-expected increase of prices to the slow growth of Slovakia’s economy and expect inflation to be lower this year than last.

PRICE growth in Slovakia slowed in February. Analysts attributed the slower-than-expected increase of prices to the slow growth of Slovakia’s economy and expect inflation to be lower this year than last.

Inflation in Slovakia slowed to 2.2 percent on an annual basis in February from 2.4 percent the previous month. Growth was recorded in prices for education, food and non-alcoholic beverages and health.

On a monthly basis, consumer prices remained unchanged, after growing by 0.6 percent in January, the Slovak Statistics Office announced on March 13.

Annual inflation in the eurozone is expected to be 1.8 percent in February, down from 2.0 percent in January, according to a flash estimate released on March 1 by Eurostat, the statistical office of the European Union. This means that prices in Slovakia are growing at a faster pace.

Compared with the expectations of analysts with the National Bank of Slovakia, inflation was moderately slower, especially due to the development of net inflation, which does not take into account the influence of motor fuel prices, indicating a slowing trend in growth on an annual basis.
Poštová Banka analyst Eva Sadovská pointed out in a memo that in February Slovakia witnessed its slowest annual price growth since the end of 2010.

“The education sector registered the most significant year-on-year February increase, up 6.6 percent,” Sadovská specified. “We also paid 5.6 percent more than in February 2012 for food and non-alcoholic beverages, which are an essential part of our family budgets. The health sector became more expensive by 4.6 percent.”

On the other hand, the year-on-year increase in prices was minimal in terms of housing and energy, up 0.1 percent, and transport prices did not change at all.

“These items, together with food, are considered to be inevitable from the consumer’s point of view and simultaneously those which most burden our wallets,” said Sadovská. “Their stagnation on an annual basis is simultaneously the main reason why this year’s growth of prices is so far much slower than last year.”

Martin Baláž, analyst with Slovenská Sporiteľňa (SLSP), attributes the slowdown in inflation to stagnating food prices, spring sales of clothes and footwear and moderately lower motor fuel prices.
Baláž ascribes the food prices, unchanged on a monthly basis, to a drop in the price of meat and slower growth of the prices of fruit and vegetables.

“In general, food prices grew slower than the seasonal development indicated,” Baláž wrote in his memo. “During the next months weather may also influence them.”

UniCredit Bank Slovakia calculated that prices of food and beverages decreased in February by 0.3 percent when traditional seasonal influences are taken into consideration, thus annual growth slowed from 5.9 percent to 5.6 percent. Seasonally adjusted food prices decreased on a monthly basis for the first time since April 2012.

“The year-on-year growth of food prices might already be close to its maximum levels and it might oscillate close to 5-6 percent in the coming months,” Ľubomír Koršňák, analyst with UniCredit Bank, wrote in his memo. “From June we expect a gradual slowdown of the year-on-year growth dynamics of food prices.”

Baláž pointed out that motor fuel prices decreased moderately for the fifth consecutive month and attributed this to the drop in oil prices on world markets over the last few weeks. This is also linked with concerns about the upcoming developments in the eurozone, activation of automatic cuts in the US budget as well as worse economic data coming from China from the start of the year. He expects that oil prices will grow again with the start of the driving season in the US in June.

Year-on-year core inflation, which monitors consumer prices excluding regulated prices and administrative interventions in taxation, slowed to 2.5 percent in February from 2.8 percent in January. Net inflation, which, unlike core inflation disregards food prices, also decreased from 2 percent to 1.8 percent. Month-on-month core inflation was zero and net inflation was minus 0.1 percent.

Slovakia achieved its historically lowest inflation in 2010, when due to a sharp weakening of demand in this period of economic crisis, it reached an average of 1 percent. In 2011, growth in inflation resumed. According to national methodology, average inflation in 2011 was 3.9 percent. In 2012, growth of prices remained at similar levels, when average inflation was 3.6 percent.

Outlook

Analysts expect that inflation this year will be slower than last year.

“We assume that inflation, compared with the previous year, will also maintain slower growth dynamics during the following months,” said Sadovská, adding that the forecast for the whole of 2013 is between 2.0 and 2.5 percent. “A cautious consumer will continue to be a damper of price growth under the influence of slower economic growth and persistent high unemployment in the country.”

Sadovská added that the development of agricultural commodities and crude oil on world markets and their impact on food prices in stores in Slovakia is a risk factor that repeats each year.
Koršňák of UniCredit expects that year-on-year inflation will stay below 2.5 percent in the following months.

“Especially food prices will draw inflation up; contrary to this the still low consumer demand should not create space for acceleration of demand inflation,” said Koršňák.

SLSP also expects that inflation in the following months will be significantly lower than it was last year, and for the whole of 2013 it might be around 2.5 percent, which is a significant decrease compared with 3.6 percent in 2012.

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