Slovenia c.bank sees inflation over 5.5% this year

In October last year, the central bank forecast 2008 average inflation at 3.3%. But the statistical office reported on Monday that it hit 6.6% year-on-year in March, up from 6.4% in February, boosted by strong prices of clothes, shoes and oil products. “If there are no large surprises in external shocks it is very possible that inflation will calm down but it will still be high. 2008 average inflation will still be above 5.5% or even higher,” Kranjec told television Slovenia late on Monday.

Annual inflation has been rising across the 15-nation euro zone due to high energy and food prices, reaching 3.5% in March from 3.3% in February. But Slovenia’s fast-growing economy has seen prices grow much faster than expected since it adopted the euro in 2007, prompting frequent complaints from citizens. Kranjec said that the government should reduce public spending and introduce competition in the sectors of energy, education, kindergartens and health services. “The government will have to radically change organization (in those sectors) by introducing competitiveness. ... Without that we can never solve the problem of inflation,” he said.

Finance Minister Andrej Bajuk told the same TV program, that the government plans to rebalance 2008 budget to reduce public spending further, adding that wages were his main concern at the moment. “Wage growth must not exceed productivity growth. That would be a collective suicide,” Bajuk said. In January, the government agreed to a 3.4% rise of public sector salaries this year but negotiations for further increases in some parts of the sector are still under way. Private sector trade unions are also demanding a general wage increase due to high inflation. Bajuk did not give details on the planned cuts in budget spending. At present, the government expects the fiscal deficit to rise to 0.9% of GDP this year from 0.1% in 2007. (Reuters)