CPI inflation accelerated to 1.3% y/y in April from 1.1% y/y in March, according to the stats office DZS data. We note that inflation had been easing through February after flattening at 1.4% in Sep-Nov last year. The April print came an edge above the market forecast for 1.2% y/y increase. In monthly terms, CPI rose by 0.7% in April, thus significantly beating the forecast for 0.3% m/m rise.
The inflation acceleration in April was almost solely driven by transport prices that increased by 1.4% y/y in the month after being down by 0.2% y/y in March. We believe that the renewed crude oil price growth, especially given that OPEC countries and Russia have agreed to keep production cuts by the end-2018, would keep transport prices on the positive territory in the following months. Otherwise, in addition to transport prices, the headline inflation print in April was driven by food, as well as housing and utilities prices. Food prices, the rise of which has been decelerating ever since the peak of 3.4% y/y in September last year, continued to impose inflationary pressures in April, similarly to the development seen in March. One of the reasons for this development could be the harsher weather this year affecting some of the agricultural produce. We may expect food price inflation to speed up going forward given the agricultural commodity prices outlook. Housing and utilities prices had the biggest contribution to the headline inflation print in the month.
Overall, given the outlooks on crude oil and agricultural commodities prices, we may expect inflation to be gradually speeding up in the following months, but to remain generally moderate this year due to their high base effects. No significant demand-pull inflationary pressures are likely in our view as although the government increased the minimum wage and public sector wage hikes are also possible, the remuneration in the private sector is not expected to rise substantially, except for construction and tourism where significant labor shortages are reported. Moreover, consumption might be shifted to a larger extent to car purchases after the government cut the respective taxes. As previously indicated by energy minister Tomislav Coric, prices of utilities are not to be adjusted upwards, but this component, which turned to be the major positive contributor to the headline inflation print in January, is likely to remain such by the middle of the year due to base effects (VAT rate cut for electricity delivery as of 2017).