Slovakia's inflation hit a two-year high in September but analysts said it was set to slow, allowing the central bank to bring interest rates in line with the eurozone ahead of January's switch to the single currency. EU-harmonised data on Wednesday showed consumer prices rose by 0.4 percent month-on-month in September, after a 0.1 percent drop in the previous month.
That put the annual rate at 4.5 percent, the highest since September 2006, the Statistics Office said. "It was in line with what was expected after the local headline inflation figures," said Eduard Hagara, analyst at ING Bank in Bratislava. Inflation measured by local methodology, reported earlier, jumped to 5.4 percent, the highest since December 2004.
"Demand-led inflation continues to rise, but it's tamed by the strong crown and we think the crown should continue to tame it also in the next year," added Hagara. Analysts said annual inflation should fall to around 4.0-4.3 percent by the end of the year, as a global slump in commodity prices puts paid to the chances of further hikes in energy prices for households.
"I think the central bank shares the same view and expects inflation to fall, which will free their hands to go down with key interest rates," said Juraj Valachy, an analyst at Tatra Banka. The small, export-driven country will have to cut rates from 4.25 percent to re-align them with the European Central Bank's before joining the single currency bloc. The ECB cut rates by 50 basis points to 3.75 percent last week.