The price index of consumer goods and services decreased by 0.2% y/y in July of 2014 (vs. +0.3% in June and +0.2% y/y in May), while in monthly terms, consumer prices also inched down by 0.2%, according national stats office GUS. Market consensus was 0.2%, while the ministry of economy's expectations - 0.0% y/y.
Thus, consumer inflation reached a negative value in annual terms for the first time in history. Also, it has remained below the lower end of the central bank's CPI target (2.5% +/- 1pp) for the 18th month.
In July, the biggest impact on the monthly CPI figure came from falls of food prices (by 1.2%) as well as prices of clothing and footwear (by 2.8%), which pushed the index down by 0.28pps and by 0.14pps, respectively. Higher prices in respect of transport (by 0.8%), communication-related fees (by 1.2%) as well as recreation and culture-related prices (by 0.9%) pushed the index up by 0.07pps, 0.06pps and by 0.06pps, respectively.
As for food prices, the most significant declines were seen in the case of vegetables (down by 9.4% m/m), fruits (down by 4.0%) and sugar (down by 3.2%).
Analysts expect annual deflation to be seen also in subsequent months - they deem that the average annual inflation this year may be as low as 0.1-0.2% vs. last year's 0.9%.
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