Slovak PPI above fcasts but inflation seen benign

...Wednesday, but analysts did not see any threat to a favourable consumer price inflation outlook.

Factory gate costs in Slovakia were up 1.8 percent on the month, putting the annual inflation rate at 3.8 percent in February, the Slovak Statistics Office said.

Analysts surveyed by Reuters had forecast a monthly increase of 0.2 percent, and an annual rate of 2.2 percent.

"Energy prices were the main factor behind the rise. It was the only surprising item, and it is a one-off phenomenon," said Eduard Hagara, an analyst at ING Bank Bratislava.

Prices of electricity, gas, steam and hot water, jumped by 4.4 percent month-on-month after a 0.3 percent drop in January.

Growth in producer prices had slowed at the beginning of the year as the impact of last year's sharp increases in energy costs faded away.

Slowing PPI has coincided with a falling consumer inflation rate this year.

Slovakia needs to keep consumer price inflation in check up to spring 2008 to fulfil its goal of adopting the euro in 2009.

The central bank cut its main two-week interest rate by 25 basis points on Tuesday, responding to a rising crown and slowing inflation.

Maria Valachyova, a senior analyst at Slovenska Sporitelna in Bratislava, said she did not expect the February PPI figure to have any impact on consumer prices or monetary policy.

Analysts expect the central bank to cut rates further this year, with the size and timing depending on the Slovak crown's strength as a rising currency effectively tightens monetary conditions and helps to keep inflation under control.

(Full table of Feb inflation data .......[ID:nPRG000286])