In brief

• National Bank of Slovakia Governor Peter Kažimír believes the ECB may have to raise interest rates several more times.
• According to him, energy is now almost one-fifth more expensive than a year ago, and the weaker euro and food prices are adding further price pressure.
• The labour market is calmer than in 2021–2022, but wages are not keeping up with prices, and the governor sees no reason to declare victory over inflation.

Inflation is accelerating again

After Monday's meeting of the ECB Governing Council, Kažimír stated that the key question is no longer whether rates will have to rise, but how many more hikes will be needed (Úroky môžu opäť rásť. Guvernér NBS varuje pred drahšími energiami a návratom inflácie – Pravda.sk) (Trhy podceňujú situáciu. Kažimír varuje, že ECB bude musieť opäť zvyšovať úrokové sadzby | Info.sk – info.sk) (Kažimír varuje pred infláciou: ECB možno čaká ďalšia vlna zvyšovania úrokov | oPeniazoch.sk – zoznam.sk) (Kažimír: ECB môže potrebovať ďalšie zvýšenia úrokových sadzieb – teraz.sk). Behind this stands a renewed acceleration of inflation, a persistent energy shock and rising costs for businesses.

Energy and the euro exchange rate

As the governor noted, energy is currently almost one-fifth more expensive than a year ago (Hranice trpezlivosti... potrebujeme konať skôr, ako nám vysoká inflácia začne pripadať normálna - Národná banka Slovenska – nbs.sk). Price pressure is also strengthened by the weaker euro against the dollar, which raises the cost of imports, and by a slight rise in food prices. The longer this situation lasts, the greater the risk that higher costs will spread across the whole economy.

Labour market calmer than in 2021

According to Kažimír, demand and the labour market are calmer than during the inflationary wave of 2021 and 2022. However, wages are not keeping up with rising prices, while broader price pressures remain under control. The governor considered this reassuring, but stressed that talk of victory would be premature.

Risks for the economy

In the governor's view, risks to inflation are skewed to the upside, while risks to economic growth are skewed to the downside. However, weaker growth does not necessarily slow inflation on its own.