Actual (May): -0.2% m/m, 5.3% y/y
Consensus: 5.7% y/y
Previous (Apr): 0.8% m/m, 5.7% y/y
The consumer prices declined slightly in May. The yearly inflation eased more than expected and so did the core inflation (4.8 pct.). The food prices increased by 0.3 pct. month-on-month, driven by seasonal rise of potatoes, vegetables and fruit prices. However, the seasonal effect was not very strong in May and the growth of food prices actually slowed compared with April. Fuel prices decreased by 3.6 pct. over the month; the fuels reflected the falling crude oil prices quite late but the drop in prices is significant and so is the contribution to disinflation. We can also see a decrease in prices of durable goods and services.
After the May CPI data the MNB may be closer to a rate cut. However, such a step would probably be risky for the country as the Eurozone debt crisis has intensified and the government has not yet started the emergency loan negotiations with the IMF/EU. Moreover, another risk for inflation expectations are the government measures, including tax hikes. That is why we still expect the interest rates to stay flat in the near term.