SK: Housing fuels inflation again

The inflation rate in Slovakia reached 3.8 % year-on-year in February, rising by 0.4 % compared to the previous month. On a monthly basis, the largest contributor to the price growth was the housing category followed by food and non-alcoholic beverages.

The most significant contributor in the year-on-year inflation were housing prices, accounting for 0.6 percentage points, with rentals and household utilities being the drivers. Other notable contributors included prices in restaurants and hotels (0.6pp) and food and non-alcoholic beverages (0.6pp). Core inflation stood at 2.8% year-on-year.

This years increase in prices was broadly distributed across various groups of goods and services, driven by the higher value-added tax (VAT) as part of the consolidation package. While the changes in service price lists already reflect this measure, the negative impact has not yet been fully realized in goods prices. Therefore, a gradual pass-through of higher VAT and increased costs (e.g., the financial transactions tax) into consumer prices is still expected. An important factor was the energy price cap, reintroduced by the government, which pushed inflation down while complicating consolidation efforts.

In the months ahead, we anticipate a slight acceleration in year-on-year price growth, potentially peaking in the summer at around 4.2%. According to our estimates, the average CPI inflation rate could land slightly below 4% this year. Compared to the European Commissions autumn forecasts, this could represent one of the highest inflation rates among all EU countries.