SK: In April, Slovak Inflation Slowed Down

In April, Slovak inflation (CPI) was slightly below our expectations, with price growth reaching 3.7% year-on-year and the monthly inflation rate landing at 0.1%. Price growth in April was the slowest both on a month-on-month and year-on-year basis since the beginning of the year. Core inflation reached 2.9% year-on-year.

The most significant contributors to year-on-year inflation were price increases in restaurants and hotels (+8.9% y/y), accounting for 0.7 percentage points (pp), and in miscellaneous goods and services (+5.9% y/y), contributing 0.4 pp. In the food and non-alcoholic beverages division, prices in April were 3.6% higher than a year ago, contributing 0.76 pp. In the most significant division, housing and energy, prices rose by 2.5% year-on-year, contributing 0.6 pp. On the other hand, the slowdown in inflation was supported by lower year-on-year prices in the transportation sector (-1.6% y/y), with a contribution of -0.1 pp. The main driver of the slowdown in the transportation division was fuel prices, which dropped by 9.3% year-on-year (contribution of -0.2 pp).

This year's increase in prices is broadly distributed across various groups of goods and services, driven by the higher value-added tax (VAT) introduced as part of the consolidation package. 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 influencing the development of inflation this year is the energy price cap reintroduced by the government, which has helped push 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 4.0%. According to our estimates, the average CPI inflation rate could end up slightly below 4% this year.