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Industry prices further increase dynamics

Agricultural prices decreased again in December (-0.4% mom). They are compensating for October’s high growth for the second consecutive month. However, even the correction in November and December was not able to erase the jump in October. Prices in industry advanced 0.5% mom in December and mainly followed the evolution of global crude oil prices.

Industrial prices in December added 0.5% mom, and the yoy decrease was cut to 0.4%. Mom growth is due to most of the industrial sectors with the exception of mining and quarrying. The main driver for industrial prices came from refined petroleum products, which naturally reflect the increase of global crude oil prices. The global crude oil price reached 55 USD/b at the beginning of December. This development is a result of the confirmation of OPEC’s agreement on oil supply reduction which was joined by other countries and hence the oil price stuck to a higher level at the beginning of this year, as well. Together with the stronger dollar, this translates into stronger pressures on price increases in the economy. The prices of chemicals added significantly in December, as well. Prices in the food processing industry stagnated in spite of the further decrease in agricultural prices.

Industry prices are set to rise gradually, according to our estimate. However, the low statistical base (low values last year) will have a significant positive effect on yoy inflation.

Agricultural prices recorded another mom decrease in December after October’s jump. The seasonally adjusted number is 1.2% mom lower, and the yoy decline deepened again from -3.6% to -4.7%. With respect to the stagnation of prices in the food processing industry, we do not expect that today’s release will have an impact on food prices in the consumer basket. We assume today’s publication was just a temporary result and that food prices will remain one of the most important and will keep consumer inflation at the level around the inflation target.

Food prices jumped up in October, and due the statistical base effect they create significant inflationary pressures on consumer inflation. Our estimate suggests they will further continue to be one of the factors keeping inflation around the level of the inflation target. Conclusively, this will allow the central bank to abolish the FX floor. This step is according to our forecast expected to happen during the second quarter.

Construction prices in December added a marginal +0.1% mom, when the prices of construction materials stagnated. However, they are set to increase as well as the world commodity prices rise. Market services prices decreased 0.9% mom in December. Nevertheless, this decrease is due to a price drop of 11.5% mom in the advertising sector. Prices in services excluding this effect were 0.1% mom higher. Thus, this might add further pressures on core consumer inflation.