Montenegro's CPI cooled to 2.2% y/y in June from 3.0% the month before due to lower food and housing price growth, data from the statistics office showed. Shrinking transport, restaurants and hotels, furnishing and clothing prices also helped curb the CPI during the month. In monthly terms, CPI recorded 0.0% growth after edging up 0.2% in May while compared to the 2012, average inflation was 2.0%.

Food prices (38.6% of the CPI basket) rose 4.5% y/y in June, retreating from a 6.3% increase a month earlier. Housing and utilities prices dropped 1.3% m/m in June, cutting the annual increase to 3.4% y/y from 4.4% in May mainly due to falling rentals and solid fuels charges.

Transport prices (10.1% of the CPI basket) deflation narrowed to 1.5% y/y in June from 4.4% the month before. Furnishing and household equipment charges, which have been retreating since August 2012, shrank 1.4% y/y, the same as in May. Clothing and footwear likewise dropped 1.8% m/m and 0.7% y/y in June for seasonal factors.

Prices of restaurants and hotels fell 3.1% y/y in June on lower catering and accommodation services costs.

Montenegro’s CPI inflation will likely quicken in the coming months as the government raised the VAT rate from 17% to 19% as of July 1 while electricity prices for households will increase 2.4% starting August. In addition, the onset of the tourism season will likely support private consumption thus putting some upward pressure on prices.

Montenegro’s central bank recently revised upwards its 2013 inflation forecast to 3-5% from a previous forecast of 1.0-3.5%.