SK: Fuel prices fell significantly

The inflation rate in Slovakia reached 2.6% year-on-year in September, with a modest 0.1% rise month-on-month. On a monthly basis, the largest contributor to price growth was the housing category, driven primarily by a 2.6% increase in rental prices. In contrast, the transport sector saw a notable decline due to a sharp drop in fuel prices (-4.4% m/m).

The year-on-year inflation figure matched our expectations. As in previous months, food prices remained the most significant contributor, accounting for 0.7 percentage points of the total inflation rate. Other notable contributors included prices in restaurants and hotels (0.4pp), alcoholic beverages and tobacco (0.3pp), and miscellaneous goods and services (0.3pp). Core inflation stood at 2.0% year-on-year, unchanged from August.

Since March, Slovakia's inflation rate has hovered around the 2% mark. However, as the base effect fades, inflation has been gradually approaching 3%. For 2024, we expect average price growth to reach around 2.8% year-on-year. Core inflationary pressures remain present, fueled by low unemployment and strong nominal wage growth. On the other hand, households will use higher wages to replenish their savings, somewhat limiting spending. Thus, the increase in savings will have an anti-inflationary effect.

A significant rise in the inflation rate is anticipated in 2025, driven by the expiration of energy subsidies and the increase in VAT and other taxes expected in January as part of the government's consolidation measures. The average inflation rate in 2025 could land slightly below 5%.