Slovak inflation accelerated once more in May as it pushed to 1.1% y/y, Slovak Statistics reported on June 14.
The annual rate of expansion in the CPI was 0.3pp quicker than in April. On a monthly basis prices grew 0.2%, double the rate of the previous month.
The result is in line with others across the Visegrad region. Surging inflation around the turn of the year had showed signs of a slowdown recently, but the momentum provided by oil prices persists, while food price growth quickened in May. At the same time, core inflation appears to be gaining pace - albeit slowly - suggesting the tightened labour markets across the region are starting to create genuine demand pressure on prices.
Reflecting the effects of commodities prices on the headline CPI, transport prices rose 3.9% y/y in April. Food prices rose 3.5%. Core inflation rose to 1.9% and net inflation to 1.4%
However, net inflation, which strips out fuel prices, grew 1.4% and influenced core inflation by 0.15pp. Those data hint that while the inflation surge remains contained thanks to the fading effect of oil, sustainable price growth, driven by improving domestic demand, is in the pipeline.
Core inflation, which excludes regulated prices – including those in the energy sector – rose to 1.9% in May. The government cut regulated energy prices in the first quarter, and the utilities segment saw deflation of 1.7% y/y. On a monthly basis, core inflation had an impact of 0.24pp on total inflation. Food prices raised core inflation by 0.15pp.
“We suspect that the strong labor market is gradually being reflected in the development of prices on the market,” write analysts at the National Bank of Slovakia.
Slovakia spent the last three years battling deflation, but escaped in December before the CPI pushed to 0.7%y/y in January. That accelerated to 1.2% in the second month of the year. Slovakia’s CPI gained 0.9% y/y on average over the first quarter; the average over the first five months of the year remained at the same level.
Despite the acceleration in the CPI, Slovak price growth still lags the rapid rises seen in Visegrad peers, and the NBS suggests its forecast for average inflation across 2017 remains unaffected at 1.3%. However, local banks recently hiked their outlook to 1.9%.
Until December, Slovakia had been stuck in deflation since 2014, largely as a result of the sharp fall in global energy prices. Across 2015 the CPI fell -0.49% following a -0.12% drop in 2014.