SK: Food remains one of the most important drivers of inflation

Price growth in Slovakia reached 3.2 % year-on-year in November with the m/m inflation rate landing at 0.2%, so the month-on-month price growth slowed significantly at the end of the year, reaching a value of 0.7% in October. Core inflation reached 2.6% year-on-year.

On a monthly basis, the most significant impact was the price increase in the food and non-alcoholic beverages category, with food prices rising by an average of 0.6% compared to October. The overall price increase was also driven by higher transportation costs, particularly a 0.9% growth in fuel prices.

The year-on-year inflation figure slightly exceeded our expectations (3.2% vs. 3.1%). The primary driver of inflation was a 4.7% increase in the food and non-alcoholic beverages category, contributing 1.1 percentage points to overall inflation. Additionally, there was a significant 5.9% rise in the restaurant and hotel sector (contribution: 0.4%), mainly driven by higher food and accommodation costs. The miscellaneous goods and services sector also experienced notable price growth of 4.1%, according to data from the Statistical Office of the Slovak Republic.

Since spring, Slovakias inflation rate has hovered around 2%. However, as the base effect wanes, inflation has been gradually approaching 3%. For 2024, we expect average price growth to reach around 2.8% year-on-year. Core inflationary pressures persist, driven by low unemployment and strong nominal wage growth. However, households are likely to use higher wages to replenish their savings, which could limit spending to some extent. This increase in savings should have an anti-inflationary effect.

A notable rise in the inflation rate is anticipated in 2025, driven by the expiration of energy subsidies and expected increases in VAT and other taxes in January as part of the governments consolidation measures. The average inflation rate in 2025 could settle slightly below 5%. On the other hand, the inflation estimate for next year may still be influenced by government regulation of household energy prices (especially gas). The government plans to announce its measures in this area within the next few days.