Consumer prices for goods and services measured by the consumer price index recorded a slowdown in the annual growth rate to 2.1% in July, according to the latest data from the DZS. On a monthly basis, a decrease of 0.9% was recorded, primarily as a result of falling prices of Clothing and Footwear due to seasonal discounts (-14%), in the observed month, the annual inflation rate dropped to 2.1% (from 2.4% in June).
Consumer prices, annual change; sources: DZS, Raiffeisen research
Compared to the same month last year, a significant contribution to the rise in inflation came from higher prices of Food and Non-Alcoholic Beverages, which have been continuously rising since November 2016. The annual price increase in this category was 1.5%. A notable contribution to inflationary pressures also came from the Transport category, where average prices increased by 7.2% year-on-year (the largest increase since February 2017). Indeed, in line with trends in global commodity markets, a relatively strong annual growth of 15.2% was recorded in the subcategory of Fuels and Lubricants, as analyzed by RBA.
Excluding energy and food prices from the overall consumer price index, the annual inflation rate in July this year was 0.7%. Observed over the first seven months of this year compared to the same period in 2017, the average inflation rate was 1.5%. The annual price increase was primarily supported by higher Energy prices (4.3%), which pushed the prices of Housing, water, electricity, gas, and other fuels as well as Transport to higher levels (3.0% and 2.8%, respectively).
This was primarily contributed by the increase in prices of petroleum products, due to the rising prices of crude oil in global markets, but also the low base effect from the reduction in electricity prices at the beginning of last year. A significant contribution to higher prices also came from Food and Non-Alcoholic Beverages (1.3%). The more pronounced growth in the inflation rate in the first seven months was restrained by lower prices of Clothing and Footwear (-0.7%) and Communications (-0.3%), which account for 6.5% and 5.5% of the consumer basket, respectively.
Excluding energy and food prices from the overall consumer price index, the annual inflation rate in the first seven months of this year was 0.9%. In the remainder of the year, the impact of rising food prices on inflationary pressures is likely to weaken, primarily due to the fading effect of the strong increase in vegetable prices at the beginning of 2017. Macroanalysts at RBA therefore expect that the rise in energy prices due to strengthening import inflationary pressures will affect the rise in retail prices of petroleum products in the domestic market, remaining the main component of stronger inflationary pressures.
On an annual basis, alongside higher electricity prices, intensified inflationary pressures will also come from higher crude oil prices, which will first spill over into the consumer basket through the transport component. Finally, it is expected that part of the inflationary pressures will also come from the continuous strengthening of domestic demand and rising demand in tourism. Although the average inflation rate for the entire year of 2018 is expected to remain modest, RBA analysts’ expectations of 1.4% are at risk of upward revision due to the global environment.
