CPI inflation accelerated to 2.6% y/y in April, up from 1.9% y/y in March, the stat office (NSI) reported. The acceleration was underpinned mainly by the regulatory hike in energy prices and strong growth of food prices. On a m/m basis, consumer prices increased by 0.7% in April due to the seasonal hike of clothes and shoes’ prices, higher food prices, as well as the administrative increase of the utility prices.
The higher y/y inflation during the month was driven by rising prices in the food and services sectors. Food prices rose by 4.9% y/y in April, both on account of unprocessed and processed foods, which we attribute to unfavorable weather conditions and regional price trends. Cold winter and sharp weather changes in the spring in the neighboring countries might have also resulted in more expensive vegetable and fruit imports, in our view. We expect that the upward pressure on food prices is likely to persist in the next months but a more significant pick-up could be only expected in Q3 after this year’s harvest.
Services inflation also picked up as services prices were flat y/y in April after being in negative territory consistently since Nov 2015. We think that the pick-up in services inflation was mostly on account of the utility price hike during the month. Retail gas prices increased sharply by 15.6% y/y in April and there was similar strengthening of district heating prices. The acceleration of electricity utility prices was less pronounced due to the relatively smaller regulated price hike. We expect that another price hike in the utility sector may be implemented as of Jul 1, which will sustain the upward pressure on consumer prices throughout the year.