In accordance with our forecasts, the Inflation declined
from 1.6% y/y in June to 1.3% y/y in July. Just as in June,
the greatest drop in annual terms was in the category of
food and non-alcoholic beverages, the prices of which
dropped by 2.1% y/y. Just as in previous months, a strong
price decline was also recorded in such categories as
clothing and footwear -1.0% y/y and fuels for personal
transport equipment: -0.7% y/y. The later enabled a
continued moderate price growth in transport prices by
1.1% y/y. Also furnishings, household equipment and
routine maintenance of the home rose by only 1.8% y/y.
The highest growth was recorded in the rent and energy
utilities category – of 5.6% y/y.
The decline in clothing prices and the low price increase in
household equipment is an indication of very weak
household demand. The consumer price index is being
drawn upwards by the prices of products with regulated
prices or those supplied by local monopolies.
According to our estimates, July is a month in which the
rate of inflation reached its record low level in y/y terms
this year. We expect that by the end of the year the rate of
inflation will amount to 1.7% y/y.
We believe that these data are an unambiguous signal for the monetary policy council to reduce interest rates by a further 50 basis points at its meeting next week.
Jakub Dvorak, Investment Research, CSOB