COMMENT

In contrast to June 2006, when Slovenia recorded a drop in prices, in June this year a 0.4% inflation rate was observed. Higher consumer prices in June this year had a strong impact on the annual growth of prices, which increased for the fourth consecutive month stopping at 3.6%. However, the 12-month average price growth remained at the level of the past six months, i.e. 2.5%.

As expected, the June inflation was pushed up the most by higher prices of package holidays and some food products. On the other hand, inflation was pushed down by lower prices of fresh fruit and vegetables.

In contrast to last year, when many pre-season reductions in clothing and footwear prices were recorded in the beginning of June, this year reductions started in the last week of June, so that in June we did not observe lower prices in the group clothing and footwear. In addition, in June this year prices of liquid and motor fuels went up, while in June last year lower prices of petroleum products were among the most important reasons for deflation.

A more detailed examination of the June inflation shows that prices increased the most in subgroups package holidays, bread and pastry, fresh meat, women’s clothes, liquid fuels, milk and milk products, and dried milk products. The jump in prices of package holidays was expected due to the arrival of the summer season and was similar to rises in the previous years. Similarly to May, in June we observed many rises in food prices, which led to significant rises in the mentioned subgroups. This time too some rises were caused by the end of discounts.

The June rise in prices was above average compared to the previous period (January 2002–May 2007) in subgroups passenger transport by air, package holidays, bread and pastry, ice cream, coffee and milk products as well as in the subgroups fresh fruit, eggs, fresh vegetables and photographic equipment. In June prices of some air tickets increased considerably, but this is not unusual as these are tickets sold via the internet, the prices of which vary greatly from month to month. The movement of the prices of fresh fruit and vegetables was entirely in line with expectations and was similar to past Junes.

In the first half of 2007 prices increased more than in the previous years in two groups: food and non-alcoholic beverages, and health. In the first group the subgroups mentioned in May (meat, milk, milk products, eggs and other food products) still stand out, only this time even more as prices in these subgroups increased more. In our comment to the May inflation we mentioned that prices in the group food and non-alcoholic beverages are also rising in other EU countries. As regards the group health, in the first half of 2007 prices of other medical products and therapeutic appliances increased slightly more than in the past.

In the entire period of double pricing (from March 2006 to the end of June 2007) consumer prices increased on average by 5.9%. In this period prices grew the most in the following groups: clothing and footwear, restaurants and hotels, food and non-alcoholic beverages, and furnishing, household equipment and maintenance. A high jump in clothing and footwear prices in this period is mainly due to seasonal factors as the impact of price reductions brought by winter sales at the beginning of the year is not covered but the change of lines in stores after the end of the sales is.

In the mentioned period in the group restaurants and hotels prices of accommodation services in hotels and prices in restaurants and cafes grew the most. The latter mostly went up a month before and in the very month of the euro changeover, while the growth in other months was more or less normal, which can also be said about the growth of prices of accommodation services in hotels during the entire period of double pricing.

Prices in the group food and non-alcoholic beverages went up by 7.4%, of which in the first half of this year alone by 5%. On the other hand, the growth in the group furnishing, household equipment and maintenance is to a greater extent the result of the past period; namely in 2006 prices of goods for routine household maintenance went up considerably.

The chart shows the development of actual and perceived inflation in the period from January 2006 to the end of June 2007. The main difference between the two is in the first months of each year. In 2006 people perceived a smaller rise in consumer prices than actually recorded in the last 12 months, while in the first two months of 2007 people thought that consumer prices grew much more than they actually did. A similar discrepancy between actual and perceived inflation was observed in other euro area countries when they introduced the new currency.

In contrast to other euro area countries, where perceived inflation was growing for almost the entire year after the euro changeover, in Slovenia after two months of deflation and thus the fall in the annual inflation rate we observed a fall in perceived inflation. After higher inflation in the last two months, perceived inflation again started to increase, which was probably also caused in part by the forthcoming end of double pricing and people fearing that prices will again rise. In part the rise in perceived inflation was also due to recent increases in prices of food products, which consumers feel the most.