Slovenia Inflation

Bloomberg Today:

Slovenia Revises Up Inflation Forecast for 2007, 2008 (Update2)


July 4 (Bloomberg) -- Slovenia revised up its inflation forecast for this year and next due to higher food and oil prices.

Inflation will be 3.2 percent this year and 2.6 percent in 2008, compared with previous forecasts of 2.5 percent for each year, the Institute of Macroeconomic Analysis and Development said today in the capital Ljubljana.

``It's a reflection of the global trend of an increase in food and oil prices,'' said institute director Janez Sustersic at a briefing with journalist. ``Prices of food in Slovenia in the first six months have risen three times more than in the same period last year.''

The European Central Bank aims to keep inflation just below 2 percent in the 13 countries that share the euro, and the ECB raised its benchmark refinancing rate to a six-year high of 4 percent on June 6 to stem inflation pressures. Slovenia in January became the first new European Union member to adopt the currency.

``Rounding up prices after the adoption of the common currency contributed only 0.24 percent to inflation and half of it happened in January,'' said institute economist Bostjan Vasle.

Slovenia said on June 29 that inflation accelerated in the month to its fastest pace since November 2004, rising to an annual rate of 3.6 percent from 2.9 percent in May.

The central bank said yesterday the increase in the rate of inflation is caused by higher oil and food prices on the world market as well as an increase in costs of services on the domestic one. These reasons ``cannot be removed only by the monetary policy of the ECB.''

``If economic growth were the reason for higher inflation, we would see higher consumer spending, which is not the case,'' Sustersic said.

The $34.6 billion economy unexpectedly accelerated to 7.2 percent in the first quarter this year, the fastest pace since 7.4 percent in the second quarter of 1999, as a warm winter enabled construction companies to continue with works without interruptions.