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Inflation Has Been Pushed To New Heights

The euro area recorded inflation of 2.9 percent in October, which is a significant drop from the 4.3 percent recorded in the previous month. And while euro inflation is declining, Slovenia, with high inflation of 6.9 percent, remains well above the euro area average.

In October, Slovenia was well above the average for the single currency area. In fact, the euro area recorded inflation of 2.9 percent in October, according to the first estimates of the European Union statistical office Eurostat, after recording a 4.3 percent inflation earlier in the month. This has been the lowest inflation level since July 2021, and the inflation has been driven mainly by high food, alcohol and tobacco prices.

At the annual level, the main contributors to inflation were food, alcohol and tobacco prices, which rose by 7.5 percent. Price inflation moderated slightly compared to September, when it was 8.8 percent. This was followed by services, which rose by 4.6 percent in October, which is 0.1 percentage points lower than in September, and non-energy industrial goods, which rose by 3.5 percent, which is 0.6 percentage points lower than in September. Meanwhile, energy prices fell by 11.1 percent on an annual basis in October, following a 4.6 percent drop in September.

Only Croatia and Slovakia have higher inflation than Slovenia

Slovenian inflation was significantly above the euro area average in October. Annual price growth, as measured by the Harmonised Index of Consumer Prices (HICP), was 6.6 percent. Among the countries for which Eurostat collects data, only Slovakia and Croatia recorded higher inflation in October, at 7.8 percent and 6.7 percent, respectively.

In September, inflation was 3 percent in Germany, 4.5 percent in France, 1.9 percent in Italy, and 4.9 percent in Austria. Belgium (-1.7 percent) and the Netherlands (-1 percent) even experienced deflation in October. According to the French news agency AFP, inflation in the euro area fell more in October than analysts had forecast, and they are now expecting it to settle at 3 percent. At 2.9 percent, inflation in the 20-member eurozone is edging closer to the European Central Bank’s (ECB) target of 2 percent, although the European Central Bank’s interest rate hikes over the past year have contributed to a fall in inflation, which climbed above 10 percent last autumn. The European Central Bank is forecasting average annual inflation of 5.6 percent this year, 3.2 percent next year and 2.1 percent in 2025.

Slovenia’s annual price growth, as measured by the Harmonised Index of Consumer Prices, which is used for comparison with other countries, was 7.1 percent in September. This is a percentage point higher than in August and 2.8 percentage points higher than the euro area average (4.3 percent). We should point out here that price growth in Slovenia was also affected by the base effect of electricity prices: electricity price regulation came into force in September last year.

More bad news for the economy

The euro area economy also experienced a slight contraction in the third quarter of this year, according to Eurostat. Quarter-on-quarter, GDP (gross domestic product) in the euro area fell by 0.1 percent. In contrast, the European Union economy recorded GDP growth of the same 0.1 percent over the same period. On an annual basis, both areas grew by 0.1 percent.

Against this backdrop, Slovenia’s Institute of Macroeconomic Analysis and Development (UMAR) recently reported a summer deterioration in most economic factors, which is quite worrying in the context of high inflation. As noted by UMAR, the year-on-year decline in activity in export-oriented industries has deepened, most notably in energy-intensive industries, while manufacturing export expectations remain very low. In the context of international comparisons, GDP in the euro area grew slightly by 0.2 percent in the second quarter of this year, while the European Union area economy stagnated.

Ana Horvat

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