Statistics Office: Deflation deepens y-o-y in July

Year-on-year inflation stood at minus 0.9 percent in July 2016, with core inflation at minus 0.3 percent and net inflation at zero percent, the Slovak Statistics Office (ŠÚ) reported on August 12.

Illustrative stock photoIllustrative stock photo (Source: Sme)

Core inflation influenced the overall month-on-month inflation rate in July 2016 by 0.21 percentage points (p.p.). Regulated prices influenced the overall rate by 0.16 p.p., whereas indirect taxes had no impact on it. Food prices influenced core inflation by 0.08 p.p., while net inflation influenced core inflation by 0.12 p.p., the TASR newswire wrote.

Analysts' comments

Despite this, the current level, and especially the structure of deflation, is still not considered harmful for economy, Ľubomír Koršňák, analyst of the UniCredit Bank Czech Republic and Slovakia, informed. Although Slovakia has been in deflation for more than 2.5 year, the rate of deflation is still relatively mild, driven only by supply factors. This form of deflation basically does not harm the economy, rather the contrary: it supports household consumption when declining prices of energy and food increase the disposable incomes of households.

The reasons behind the July price decline and simultaneous deepening of year-on-year deflation are mainly the regulated prices of energy – this time gas prices which declined by -4.8 percent on average. Compared to last summer, they dropped by more than 11 percent. The decline in gas prices caused about half of the month-on-month decline in consumer prices (negative contribution to inflation -0.17 p.p.), and the y-o-y inflation by almost one half, too (-0.41 p.p). The remaining decline in prices was caused mostly by prices of food and fuels. Also the prices of holidays which dropped by -1.1 percent (thus lower than last year) contributed to the deflation. Prices of clothing and shoes marked a typical decline in prices m-o-m, Koršňák added.

The chief economist of the Slovenská Sporiteľňa bank, Mária Valachyová, opined for TASR, that lower prices of gas for households were behind the deepening of deflation in July. “Behind the July decrease in prices, also summer clothes sales and typical seasonal price reduction of vegetables can be seen,” she said. ”We expect to see deflation – i.e. price decline – for a few more months. A return to increasing prices is expected no sooner than the beginning of next year,” Slovenská sporiteľňa analyst summed up. 

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