In brief

• NBS Governor Peter Kažimír warns that the ECB may need further interest rate hikes.
• Energy is roughly one-fifth more expensive than a year ago, and a weaker euro raises import costs.
• The labour market and wages are calmer than in 2021–2022, but the governor considers declaring victory over inflation premature.

Inflation is picking up again

The European Central Bank may raise interest rates in the near future, and according to Narodowy Bank Słowacji Governor Peter Kažimír, markets have not yet priced in this increase (Trhy podceňujú situáciu. Kažimír varuje, že ECB bude musieť opäť zvyšovať úrokové sadzby | Info.sk – info.sk) (Kažimír: ECB môže potrebovať ďalšie zvýšenia úrokových sadzieb – teraz.sk). Kažimír said this on Monday, 2 November, after a meeting of the ECB Governing Council (Kažimír varuje pred infláciou: ECB možno čaká ďalšia vlna zvyšovania úrokov | oPeniazoch.sk – zoznam.sk) (Hranice trpezlivosti... potrebujeme konať skôr, ako nám vysoká inflácia začne pripadať normálna - Národná banka Slovenska – nbs.sk). In his view, the question is no longer whether rates will have to rise again, but by how much more.

Energy, the exchange rate and food prices

Energy costs about one-fifth more than a year ago. Price growth is also being driven by the weaker euro against the dollar, which raises import costs, and by slightly rising food prices. If this situation persists for longer, higher costs may spread across the entire economy, and firms will increasingly pass them on to customers.

Labour market and wages without strong pressure

According to Kažimír, demand and the labour market are calmer than during the inflation wave of 2021–2022. Wages are not chasing prices for now, and broader price pressures remain under control. However, the governor considers declaring victory over inflation premature.

Risks and outlook

The risks to price growth outweigh the risks to economic growth, and the latter may be weaker. Weaker economic growth on its own, however, need not help lower inflation. Kažimír added that core inflation has never settled at a level the central bank would consider desirable, and even this year's unusually mild rise in food prices need not persist.