CPI inflation accelerated to 2.2% y/y in March from 2.0% y/y in the previous month, the stat office (NSI) reported. The acceleration was on account of higher food, beverages and tobacco, utility and tourism prices. On the downside, fuel price growth slowed to 1.1% y/y during the month, in our opinion under the impact of high base effects from the previous year’s higher increase of oil price. In m/m terms, CPI inflation fell by 0.3% m/m, declining for the first time since Jun 2017. Overall, headline inflation has returned to an upward trend despite its one-off reverse in January, and we expect the trend to continue in Q2, as well.
Food inflation picked up to 1.1% y/y in March, slightly up from 1.0% y/y in February. The faster food inflation was underpinned by accelerating y/y growth of bread, cereals and meat, as well as by slower decline of vegetables’ prices. The higher tobacco excises as of Jan 2018 have also boosted cigarettes’ prices. Agricultural PPI fell y/y in Q4 but we expect that food CPI inflation will continue to moderately acceleration in the mid-term due to strong demand and upward price pressures in regional perspective.
Services price growth picked up to 4.6% y/y on the back of faster y/y increases of prices in the telecom, tourism, utility sectors. Utility sector inflation went up by 5.0% y/y in March and we expect it to strengthen further in April when the gas price will be hiked by 2.6%. Still, district heating and electricity prices will not be raised until Q3 so we think the upward pressure from the gas price hike on the headline index will remain limited.
Non-food inflation slowed to 1.2% y/y compared to 1.3% y/y in the previous month, reflecting the slowing growth of fuel prices. Clothing prices also continued their y/y decline, but at slower pace than in the previous month.