Slovak Sept CPI below fcast, rates still seen up

BRATISLAVA, Oct 11 (Reuters) - Slovakia's inflation was below expectations in September as lower transportation prices helped offset an increase in cost of food, the Statistics Office data showed on Wednesday.

Consumer prices fell by 0.3 percent month-on-month in September, putting the annual inflation rate at 4.6 percent, the Statistics Office said.

Inflation was better than expected in September - a Reuters poll showed the market had forecast prices to be flat on the month and predicted annual inflation of 4.9 percent - but analysts expected the central bank to raise interest rates further to keep the country on track to adopt the euro in 2009.

Slovakia's 2006 inflation peaked at 5.1 percent in August.

A monthly decline in transportation prices by 2.2 percent, influenced mainly by lower cost of crude oil, was a key driver of consumer prices in September, analysts said.

They added September inflation data showed smaller danger of inflation acceleration compared with market expectations earlier this year

"Inflation risks have certainly shrunk. The crown is firming, hikes in utility prices were smaller (than originally expected) and fuel prices are also declining," said CSOB Bank analyst Silvia Cechovicova.

The Slovak crown firmed to an all-time high of 36.900 to the euro on Wednesday, and a firming currency helps to prevent hikes in consumer prices.

The Slovak inflation rate has been above the central bank's target of 2.5 percent this year due to high cost of oil and because of rising domestic demand stemming from strong economic growth.

The central bank (NBS) has raised the key two-week repo rate by 175 basis points to 4.75 percent in four steps this year as it fights against inflation risks endangering fulfilment of the inflation condition for euro adoption.

Analysts said more monetary policy tightening was likely this year despite weakening inflation risks.

"The central bank is expected to increase interest rates further, but the amount might be smaller," said ING Bank's senior analyst Lucia Steklacova said. ((Reporting by Martin Santa, editing by Cheryl Juckes; bratislava.newsroom@reuters.com; Reuters Messaging: martin.santa.reuters.com@reuters.net; +421 2 5341 8402))

Keywords: ECONOMY SLOVAKIA INFLATION