CPI deflation moderated to 0.2% y/y in July compared to the 1.3% y/y deflation for the previous month, the statistical institute (NSI) reported. The uptick in the price trend seemed to be due mostly to food inflation, which strengthened to 2.0% y/y on account of a combination of above-seasonal price hikes and low base effects. The stronger food inflation reflected mostly higher prices of fruits and vegetables, which we think could be due to rising import prices as a result of unfavourable weather conditions and related crop damages. Accordingly, prices are likely to remain high in August as well but we expect the upward pressure on overall food prices to ease since the low base effects are likely to disappear in the next months.
Apart from food prices, services prices also contributed to the lower CPI deflation in July. Services declined at a slower 1.0% y/y rate for the month on account of the entertainment and hotel segments. Entertainment prices were mostly boosted by prices for tourist and holiday packages and accordingly, we think that services inflation was almost entirely due to the strong tourism season this year.
In general, however, the CPI figures did not suggest any emerging demand pressure on prices so the price trend should remain stable and dependent mostly on food and fuel prices, in our opinion. Consumer durable goods prices continued to fall and the rate of decline even picked up from the previous month. There was some slight uptick in clothing prices but we mostly relate it to tourist demand leading to lower seasonal discounts. The decline of fuel prices continued to moderate to 15.7% y/y in July.