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Slovenian March inflation soars to 5-year high

Inflation in euro zone newcomer Slovenia jumped to a 5-year high in March, 15 months after the country joined the euro zone, a move blamed by most Slovenians for steep prices rises.

The statistical office reported on Monday year-on-year inflation jumped to 6.6% year-on-year in March from 6.4% in February, which analysts said put pressure on the government to resist demands for steep public wage increases. Inflation was boosted mainly by the prices of shoes, clothes and oil products. Prices rose 1.3% month-on-month, compared with a fall of 0.1% in February.

Inflation has been growing everywhere in the 15-nation euro zone due to high energy and food prices. It rose to 3.5% in the currency area 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. “The main risk is that (inflation) will become entrenched through higher wage increases and higher government spending,”

Christian Jenni, an analyst at rating agency D&B, told Reuters. “This could further increase price growth and could end in a wage-price spiral,” he added.

In January, the government agreed to a 3.4% rise of public sector salaries this year but negotiations for further rises 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. The government’s Institute of Macroeconomic Analysis and Development said it expected inflation to calm down over the following months, adding December year-on-year inflation is expected to be below 5.7% of December last year.

 
DEFICIT DOWN

The statistics office also reported the 2007 fiscal deficit fell to 0.1% of gross domestic product from 1.2% in 2006. The government expects the deficit to rise to 0.9% of GDP this year. The government said in January it expected a fiscal surplus of some 0.1% of GDP this year. Although the deficit was at the lowest level since Slovenia’s independence in 1991, analysts said the government should lead a very restrictive policy to prevent it from rising significantly over the following years. The statistics office also reported a fall in 2007 general government debt to 24.1% of GDP from 27.1% in 2006, and the government expects the debt to fall to 23.4% of GDP this year. (Reuters)