(Adds central bank, analyst comments, background)
By Martin Dokoupil
BRATISLAVA, Jan 16 (Reuters) - Slovak inflation climbed to a
one-year high in December fed by surging food and fuel prices,
but the country remained firmly on track to meet the nominal
test for euro zone entry in 2009.
Inflation, calculated under EU norms, rose to 2.5 percent on
the year in December from 2.3 percent in November, the
Statistics Office said on Wednesday.
On the month, prices rose 0.3 percent, slowing less than
expected from November's 0.4 percent rise.
Inflation has been on the rise across Europe mainly fuelled
by global commodity prices, making some central banks tighten
policy, but the Slovaks were seen staying on hold with the need
to align their rates with the euro zone.
"It seems now it is almost certain that the nominal
Maastricht criterion will be met as the (12-month) average
stands at 1.9 percent and the criterion is 2.8 percent," said
Juraj Valachy, analyst at Tatra Banka in Bratislava.
"Inflation would have to go to 7 percent year-on-year to
endanger meeting the criterion, which is very unlikely," he
said.
Under the Maastricht Treaty, Slovakia's EU-norm rate must
not exceed 1.5 percentage points above the average of three
lowest European Union national inflation rates.
The country has been meeting the condition since August,
when inflation hit a record low of 1.2 percent. The euro entry
assessment is due in the spring.
The crown showed no reaction to the release, dealers said.
It fell to a two-week low of 33.540 per euro <EURSKK=> on global
worries of a U.S. recession, from Tuesday's close of 33.395.
LONGER-TERM INFLATION A WORRY
While meeting the criterion is almost certain, questions
remain whether Slovak inflation will stay sustainably low over
time after the country gives up its floating exchange rate.
"Inflation sustainability is one of weaker spots Slovakia
has on its road to the euro," said Miroslav Plojhar, economist
at JP Morgan in London.
"Inflation should be around 3 percent in the middle of the
year. This is a lot but not enough to justify a negative report
by the European Commission, which would need a strong argument
for not allowing Slovakia in," he said.
NBS Governor Ivan Sramko said in Vienna on Wednesday the
Slovak economy was not overheating and the country is on track
to meet all nominal criteria to join the euro zone.
But leftist Prime Minister Robert Fico told Reuters last
weekend accelerating inflation in new euro zone member Slovenia
made him nervous.
He said Slovakia's lower income and price levels could
trigger even bigger pressure for price alignment with the euro
zone countries after Slovakia joins.
The NBS predicts inflation to overshoot its 2.0 percent
target this year, coming at 2.3 percent in December 2008. It was
due to comment on the latest inflation data later on Wednesday.
Analysts said latest inflation data did not signal risks of
demand-led pressures in the red-hot economy, which grew at a
record 9.4 percent in the third quarter, giving the central bank
room to stay put in the coming months, with the eye on putting
its rates on par with the European Central Bank.
"In our view the NBS will leave rates on hold at 4.25
percent, watching closely the ECB, which we expect to cut rates
to 3.75 percent in the third or the fourth quarter," said Piotr
Matys, analyst at 4Cast in London.
"Thus we expect the NBS to cut by 50 basis points at some
stage in the second half," he said.
(For details of December inflation data please click on
[] and [ID:nL16542413)
(Additional reporting by Peter Laca in Vienna)
