Slovakia's inflation slowed in November as energy price rises last year disappeared from the statistics, and analysts saw no change in interest rates as the country is on track to meet conditions for adopting the euro.
Inflation, calculated by EU methodology, measured 2.3 percent year on year in November, down from a 10-month high of 2.4 percent in October, the Slovak Statistics Office said on Friday. Month on month, inflation was 0.4 percent, after 0.7 percent in October.
"The annual decline in the inflation rate was caused by the disappearance of last year's higher numbers (energy price increases)," said Eduard Hagara, an analyst with ING Bank in Bratislava. Annual inflation was slightly above analysts' forecast of 2.2 percent, and the central bank also said price growth was above its prediction due to a bigger increase in food costs.
"Overall inflation dynamic should slightly accelerate in December from November, mainly due to faster year-on-year dynamics of fuel prices," the NBS wrote in a statement.
"Prices of food and services should also show higher year-on-year dynamics," it added. Inflation has picked up speed since September due to higher food costs, but the country still meets the condition for its planned 2009 entry to the euro zone.
Inflation is the main challenge for the plan to adopt the euro. Under the Maastricht Treaty, Slovakia's EU-norm rate must not exceed 1.5 percentage points above the average of three lowest European Union national inflation rates.
"Food and oil will prevail as the main driving factors for HICP (EU-norm inflation), but since the same factors fuel inflation in the EU and euro zone, we do not see significant risk to the Maastricht criteria," said Piotr Matys, an analyst with 4Cast in London. The central bank and analysts expect Slovak inflation to be well below the euro adoption threshold when the country is assessed next spring for joining the common currency area.
However, Slovakia will also have to prove its inflation will stay low over time to qualify for the euro zone entry. Central bank Governor Ivan Sramko said earlier this week that the debate on inflation sustainability would be more complex if the rate rose closer to the reference value.
The central bank will decide on interest rates on Tuesday, and analysts widely expect the main two-week repo rate to stay at 4.25 percent for the eighth month in a row.
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