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Slovak cbank to rise 2008 inflation forecast

The Slovak central bank (NBS) will probably raise its 2008 inflation forecast next month, mainly due to soaring oil prices on the world markets, its macroeconomic analyses head Milan Donoval said on Thursday.

The National Bank of Slovakia expected average EU-norm inflation of 2.9% for 2008 in its latest mid-term forecast, released in January. But Donoval said the prediction will be probably upped by 0.3-0.5 percentage points at the next revision in April. “It is the first estimate on the basis of January figures. I rather see it (the upward revision) closer to 0.3%,” he told Reuters on the sidelines of a euro adoption conference. Inflation, which is Slovakia’s key challenge in the run-up to euro adoption in 2009, jumped to a 13-month high of 3.2% in January on surging energy and food costs, and analysts expect it to climb further in February. Donoval told the conference that he also saw 12-month average inflation rising to around 2.2% in the spring, when Slovakia’s readiness for the euro will be assessed, from the previous forecast of 2.0%. But he said a buffer to meet the nominal euro adoption criterion will still remain big enough as the reference value should also rise to around 2.9-3.1%, from previously estimated 2.7-2.8%.

The Slovaks first met the inflation criterion -- defined as 1.5 percentage points above the average of three lowest rates in the European Union -- in August, but doubts remain, whether low price growth can be sustained over a longer period. “Inflation developments are sustainable from our point of view, because volatile energy prices have already converged with the euro zone levels and food prices as well,” Donoval said. (Reuters)