Slovak inflation slowed to 0.8% y/y in April, a second consecutive drop of 0.2pp, Slovak Statistics reported on May 15. On a monthly basis, consumer price growth grew just 0.1%.
The results are in line with others across the Visegrad region. Surging inflation around the turn of the year showed signs of a slowdown in March as the momentum provided by fuel and food prices faded a little, and that has largely continue in April. At the same time, core inflation appears to be steadily rising, suggesting the tightened labour markets across the region are starting to create genuine demand pressure on the CPI.
Reflecting the effects of commodities prices on the headline CPI, transport prices rose 5.2% y/y in April. Food and services prices rose 1.9 %.
However, net inflation, which strips out fuel prices, grew 1.2% and influenced core inflation by 0.10pp. Those data hint that while the inflation surge is fading, 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 1.5% in April. The government cut regulated energy prices in the first quarter, and the utilities segment clipped -0.01pp from headline inflation.
“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.
Despite the acceleration in the CPI, Slovak prices 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.