Consumer prices increased by 0.2% y/y in December following a similar 0.2% drop in the previous month, the statistical office reported on Monday. Consumer prices have been falling since Feb 2014 and the declines were relatively mild until Feb 2016 when deflation deepened considerably but the pace of price contractions has been narrowing in all months since May last year. Overall, the main downward pressure was on the back of global commodity and fuel price developments. In December, fuel prices were major pro-inflationary component as transport price eventually posted an increase of 1.5% following narrowing pace of contraction in the previous few months. Food prices and prices of alcoholic drinks and tobacco also added upward pressure as they continued increasing in December for the second month running and the pace gained some speed to 1.0% y/y and 2.6% y/y. Thus, food prices had largest contribution to the CPI increase in December while utilities prices remained the major drag. Overall, all major groups contributed to the switch to increase in the headline index but prices of clothing and footwear, which were the component with largest positive contribution in November but switched to a decline in December.
In m/m terms, consumer prices dropped by 0.2% in December after remaining flat in November and increasing in the previous two months. Clothing and footwear prices were with major impact due to seasonal discounts with also a slight contribution coming from furniture prices, the only two components to post declines in monthly terms in December. In the entire 2016, consumer prices fell by 1.1% on average compared to 2015.
We expect consumer prices to continue to be affected by the developments of world commodity prices, of crude oil and agricultural products in particular. Thus, we expect prices to continue rising moderately in the months to follow, largely on base effects and in line with global developments. No considerable demand-side pressures are evident for now despite rising retail sales and wages, likely because unemployment is still high as well as household indebtedness.