CPI rose 0.3% m/m in February, which was in the middle of the 0.4% consensus and our 0.2% estimate. This has brought annual inflation down to 7.0% from January's 7.3%.


The deviation from our estimate was linked to the food, transportation and clothing segments. Annual food inflation declined less sharply than we expected to 5.6% in February from January's 6.8%. On the other hand, the discounts in the clothing segment were more generous than our estimates. The bad news was that passenger car prices jumped by 2.3% m/m, which pulled up the headline figure. In essence, there was a similar price adjustment in furniture prices (1.8%). Although it is not possible to say that there was full-fledged demand pressure on pricing behavior, the details do not appear to be too encouraging for the significant disinflation that the CBT hopes to achieve this year.


Annual core-I inflation rose to 5.8% from 5.7% (Erste: 5.7%). More importantly, the trend indicator (annualized three-month seasonally- adjusted change) for core inflation now increased to 6.0% from 5.6%. The continuation of this trend would underline the odds of above 6% inflation by the end of the year vs. the CBT's 5.3% inflation estimate for end-2013 (Erste: 6.4%). Annual services inflation also rose to 7.1% from 7.0%.


The data would underline the need for caution regarding the inflation outlook. So far inflation seemed less of a concern for the Bank as inflation expectations remained benign. In fact, the financial stability objective has taken the front seat in the face of accelerating credit growth. This balance is not likely to change after today's data, in our view. Nevertheless, the CBT may be encouraged to address the rapid credit growth from the price stability perspective as well.

Source BNE