Consumer prices continue to decline

Cheap crude oil and reduced VAT on selected foods are making an impact.

(Source: Sme)

Consumer prices in Slovakia continued to decrease in November, but this decline was milder than in October also due to the vanishing effect of the introduction of free rail transport for selected groups of Slovakia’s population. The year-on-year inflation decreased 0.4 percent in November, compared to the October decrease of 0.6 percent, according to the Slovak Statistics Office.

“The type of deflation that Slovakia has been experiencing over the recent years is not inevitably harmful for the economy,” Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia wrote in his memo. “Contrary to this...moderate deflation increases available funds of households for purchase of common goods and services – along with this their prices have been maintaining a muffled but still mildly positive increase which prevents the forming of a deflation spiral.”

Koršňák recalled that Slovakia most recently reported year-on-year growth of prices in December 2013, i.e. almost two years ago.

The analyst sees especially last year’s lower comparison basis, when the effect of free rail transport has been gradually vanishing, as behind milder decline dynamics. Inflation has been dragged down especially by other factors when regulated prices decreased by 2 percent year on year. The year-on-year decline of motor fuel prices mirroring record low prices of crude oil on world markets continued too.

The development of food prices continues to prevent a faster return to positive inflation in Slovakia. Food prices are expected to decline during the coming months while this development will be supported by reduction of VAT on selected foods, according to Koršňák.

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