(Adds central bank comments, updates crown)
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, overshooting the central
bank's (NBS) end-year target of 2 percent.
On the month, prices rose 0.3 percent, slowing less than
expected from November's 0.4 percent rise.
Inflation has risen across central Europe, mainly fuelled by
global commodity prices, making some central banks tighten
monetary policy. But Slovakia is expected to hold interest rates
at 4.25 percent as it needs to align them with the euro zone
equivalent, which is currently 4.0 percent.
"It seems now it is almost certain that the nominal
Maastricht criterion will be met as the (12-month inflation)
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."
Under the Maastricht Treaty, the average annual EU-norm
inflation must not exceed 1.5 percentage points above the
average of the three lowest rates in the EU.
The NBS said December inflation was slightly above its
forecast and it expects the annual rate to accelerate in
January, mainly due to increases in regulated energy and
transport prices.
Slovakia's euro entry assessment is due in the spring.
The crown showed no reaction to the data. It fell to a
two-week low of 33.525 per euro <EURSKK=> at 1400 GMT on global
worries about a possible 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 low over time after
the country gives up its floating exchange rate.
"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," said Miroslav Plojhar, economist
at JP Morgan in London.
NBS Vice-Governor Viliam Ostrozlik was optimistic that
Slovakia will prove it can maintain low inflation. "Today I
think we have enough arguments that we should meet it (the
criterion) also from the point of view of sustainability," he
told Reuters after a cabinet meeting.
Prime Minister Robert Fico told Reuters last weekend that
Slovakia would meet the criterion but accelerating inflation in
new euro zone member Slovenia made him nervous, as it could be
mirrored in his country.
The NBS predicts inflation will overshoot its 2.0 percent
target this year, coming at 2.3 percent in December 2008.
Analysts said the data did not signal risks of demand-led
pressures in the economy which grew at a record 9.4 percent in
the third quarter.
"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. "Thus we expect the NBS to cut by 50
basis points at some stage in the second half."
(For details of December inflation data please click on
[] and [ID:nL16542413)
(Additional reporting by Martin Santa; editing by David
Stamp)
