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Inflation exceeded expectations

The rise in consumer prices in February was impacted by transport and food.

Illustrative stock photo(Source: Sme)

Year-on-year inflation amounted to 1.2 percent in February. Core inflation reached 1.9 percent, while net inflation stood at 1.6 percent, the Statistics Office informed on March 14.

The annual increase in consumer prices has surprised observers.

“Annual inflation reached the highest level since August 2013, though it still lags behind the inflation goal of the European Central Bank,” Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia, wrote in a memo.

Unlike previous years, this year's inflation does not emphasise the growth in real incomes of households. Conversely, it starts to cut from it slightly, Koršňák added.

The main factors behind the accelerated inflation are food prices and demand inflation, according to the analyst.

Read also: Read also:Inflation continues rising

Prices rose in the divisions of transport (7.2 percent y/y); health (4.8 percent y/y); food and non-alcoholic beverages (2.4 percent y/y); restaurants and hotels (7.2 percent y/y); alcoholic beverages and tobacco (2 percent y/y); education (1.9 percent y/y); recreation and culture (1.3 percent y/y); miscellaneous goods and services (1.2 percent y/y); and communication (0.4 percent y/y).

The prices of housing, water, electricity, gas and other fuels declined by 1.7 percent y/y, while those of furnishings, equipment and routine household maintenance fell by 0.6 percent y/y, and of clothing and footwear by 0.3 percent y/y.

“The prices in transport were impacted, among other things, by the base effect from last year,” Katarína Muchová, analyst with Slovenská Sporiteľňa, wrote in a memo. “In the case of food, the effect of reduced VAT on selected foodstuffs died down and food prices started to reflect the development of prices of food commodities in the global markets.”

In monthly terms, inflation amounted to 0.5 percent in total in February, mostly due to higher prices in transport and food, Muchová added.

Koršňák does not expect a significant acceleration of inflation, which means that it will not slow down household consumption in Slovakia in the near future.

Also, Muchová expects that in the following months inflation will stay at comparable levels.

“But the base effect of oil prices should be reduced in March,” she added.

Inflation should continue increasing this year, though it will not achieve the ECB goal, Muchová and Koršňák agreed.

Topic: Economics

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