Slovakia’s annual headline inflation eased further in July 2013 to a two-and-a-half year low of 1.5% from 1.6% in June, data from the statistics office showed. The monthly inflation stood at -0.1% in July, down from +0.1% in June.

Food prices, which have a strong weight in the consumer basket, fell 0.6% m/m following a 1.1% monthly rise in June. The annual growth in food prices slipped to 4.3% last month from 4.4% in June.

The July annual core inflation eased to 1.6% from 1.7% in June.

For the first seven months of 2013, consumer prices increased by 1.8% y/y on average.

IntelliNews Comment: Slovak average annual headline consumer price inflation slowed down from 1.6% in 2009 to an all-time-low of 1% in 2010 due to subdued demand during the economic crisis. With the revival of the economy in the beginning of 2011, inflation started gaining ground, driven up also by higher value-added tax and excise duties and by rising oil and food prices. The average annual inflation thus surged to 3.9% in 2011 and eased slightly to 3.6% in 2012.

The recent decline in inflation is in line with our expectations and reflects subdued demand, moderate salary growth and cautious consumer spending amid rising unemployment and in line with the economic slowdown. In view of the projected significant deceleration of Slovak economic growth (to less than 1% in 2013 from 2% in 2012), a good grain harvest and no prospects of major price pressures, inflation is expected to remain subdued this year.