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Slovak Analysts Expect Increase in Prices After Euro Introduction
( 30 / July / 2007 )
Bratislava July 30 (TASR) - A survey conducted by SLOVAKIA of economists indicates that joining the euro on January 1, 2009 will have an inflationary effect and inflation could be as high as 4 percent in the first years after entry.
According to the survey, the reason is that inflation will no longer be suppressed by the strengthening of the domestic currency (Sk), and there will also be other effects that are not directly connected to the transfer to the euro. Among these are the development of oil prices, USD/EUR exchange rate, government fiscal policy or the harvest quality in a given year.
Most analysts addressed by TASR estimate inflation in the first years after the planned entry into the euro zone in 2009 to be in the 3-4-percent range, whereas in 2008 it should be around 2 percent.
"Freezing of the exchange rate will inevitably lead to inflationary pressure. We suppose that in the first year after euro introduction, the EU harmonised inflation will rise by a minimum of 0.5 percentage points to 2.7 percent," says Viliam Patoprsty, main analyst at Unicredit Bank.
"The strengthening of the Slovak crown, which positively influences prices of imported goods, will no longer influence inflation," explains Postova Bank analyst Eva Sarazova. She thus expects that after Slovakia enters the euro zone inflation will rise to at least 3.5 percent. A similar increase in prices, especially because of the freezing of the SK/EUR exchange rate, is also expected by Juraj Valachy from Tatra Bank.
"The only agent Slovakia can really influence is the deficit of public finances. That's why it's important for the Government to carefully monitor the inflationary pressures and use its policy tools to suppress demand pressures," emphasises Valachy.
It's also necessary to count on the influence of normal inflationary pressures such as the introduction of energy taxes, consumption tax on cigarettes going up and on higher prices for food and energy, adds VUB analyst Martin Lenko.
What has recently attracted attention was the acceleration of price increases in Slovenia, which entered the Euro zone on January 1 of this year, points out Slovenska Sporitelna analyst Maria Valachyova.
Valachyova, like other analysts, considers it probable that inflation will increase in Slovakia too after the introduction of the euro. Another aspect of the euro's introduction will be price increases due to rounding off, which according to the National Bank of Slovakia (NBS) should represent some 0.2-0.3 percentage points.