Consumer prices in May rose by 0.5% m/m and slowed down to 5.6% y/y, after the temporary rise to 6.1% in April. The outcome came in line with expectations., therefore there should not be any dramatic reaction of financial markets; although the market should feel some relief after the recent streak of bad news.
The decline in y/y inflation was enabled by the high base of last May, when prices rose by 0.9% m/m. The fastest rising item in May were food prices, which is a seasonal phenomenon. On the other hand, prices in transportation were flat m/m and extended their decline in y/y terms, as car fuel prices were unchanged m/m in May. The prices in categories that are affected by state regulation, as housing or healthcare, are apparently subdued. Also telecom fees are stagnating for several months. On the other hand, prices in restaurants and leisure time prices accelerated in y/y terms.
Table: Inflation in %
May 02 Apr 02 May 01
CPI m/m 0,5 0,9 0,9
y/y 5,6 6,1 10,8
core inflation m/m 0,5 0,6 0,5
y/y 6,0 6,1 10,5
May was the month with the most favorable comparative basis. It is likely that the y/y CPI will increase again in June, it is quite probable that it will at least not decline. If the December inflation target of 5.5% y/y was not achieved in May, the chances that it is achieved in December are quite low. Therefore, the data are in fact a bad news from the longer term perspective. Another rate hike is still probable.
The core inflation slowed down to 6.0% y/y from 6.1% y/y in April, rising 0.5% on month.
Jakub Dvorak, Investment Research, CSOB