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Slovakia faces first deflation

FOR THE first time in its history, prices in Slovakia dropped compared to the previous year. Inflation measured using the national methodology stood at -0.1 percent in February, with core inflation at 0.3 percent and net inflation at 0.2 percent, the Statistics Office informed on March 12.

FOR THE first time in its history, prices in Slovakia dropped compared to the previous year. Inflation measured using the national methodology stood at -0.1 percent in February, with core inflation at 0.3 percent and net inflation at 0.2 percent, the Statistics Office informed on March 12.

Analysts say that the drop was affected mostly by the prices of food.

In February, compared with January, core inflation affected total inflation by 0.10 percentage points, whereas regulated prices and indirect taxes did not impact total inflation. Food prices influenced core inflation by -0.06 percentage points and net inflation affected core inflation by -0.03 percentage points.

In annual terms, prices declined altogether by 0.1 percent. Postal and telecoms services dropped by 1.4 percent; transport by 1.3 percent; home furnishing and common maintenance by 1.1 percent; various goods and services by 1 percent; and housing, water, energy, gas and other fuels by 0.9 percent. Growth was recorded in the development of prices for education by 5.1 percent; alcoholic beverages and tobacco by 2 percent; restaurant and hotel services by 1.5 percent; health by 0.9 percent; clothing and footwear by 0.8 percent; and food and soft drinks and culture by 0.6 percent each, according to the ŠÚ.

Compared to the previous month, prices also dropped by 0.1 percent, with the highest decline being reported in clothing and footwear (by 0.7 percent), alcoholic beverages and tobacco (by 0.4 percent), and food and non-alcoholic beverages (by 0.3 percent). Prices grew in home furnishing and common maintenance, recreation and culture, education, and various goods and services by 0.1 percent each, while prices in housing, water, energy, gas and other fuels, health, transport, postal and telecoms services, and restaurant and hotel services, remained unchanged.

Analysts attribute the drop in inflation mostly to the prices of food, with Andrej Arady of VÚB Bank explaining that though prices rose by 2.6 percent month-on-month in January, they were slightly overestimated and in February they dropped again, the SITA newswire wrote.

Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia, added that there is not a stronger inflation impulse.

“The slowly recovering domestic consumption reins in the demand inflation; a new harvest helped to stop the increase in prices of food,” Koršňák said, as quoted by SITA, adding that prices might also come close to deflation in the following months. A slight acceleration in price growth may come in the second half of the year, he said.

One of the risks for inflation, however, is the development in Ukraine. Escalating tensions and imposing economic sanctions on Russia may increase the price of oil on the global market, which would increase inflation in Slovakia sooner, Koršňák said.

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