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Govt Think-Tank Cuts Inflation Forecast to 1.8% (adds)

Ljubljana, 06 October (STA) - The Institute of Macroeconomic Analysis and Development (IMAD), a government think-tank, cut its inflation forecast for this year by a full percentage point to 1.8% Wednesday, citing the government's decision not to raise electricity excise and a new methodology for calculating school meals in the consumer price index.

Electricity excise was expected to almost quadruple in November to EUR 12.10 and gas excise was planned to double to 3.63 cent per cubic metre, but the government decided to forgo higher budget revenue in order not to stymie the economic recovery.

A new methodology for school meals, introduced after the adoption of a law partially subsidising meals at all levels of education starting this school year, reduced inflation by 0.7 points in September alone, according to the Statistical Office.

These two changes are one-off events, but they will have a long-lasting impact on consumer prices in Slovenia, IMAD director Bostjan Vasle told the press. He said lower inflation would also affect the competitiveness of the Slovenian economy, which has been improving but much slower than elsewhere in the eurozone.

The economy is recovering, but the relatively brisk pace from the second quarter (2.2%) will not continue, Vasle said, which is clear from short-term indicators such as exports, retail sales and industrial output released in the latest issue of IMAD's Economic Mirror.

On the labour market, meanwhile, the situation is no longer worsening and the number of the unemployed has remained under 100,000. However, in construction and manufacturing the payrolls are still shrinking.

At the same time, wage growth has been slowing down, in particular in the public sector, where it had been very high in the previous years and "not in accordance with the general economic situation," Vasle said.

Indeed, IMAD calculated that in the absence of a pay freeze, growth in the public sector would outpace that in the previous years.

"In macroeconomic terms it is appropriate that the government stick with the planned pay freeze," Vasle said. he noted that this was a mild measure considering that public sector workers faces job cuts of as much as 25% elsewhere in the EU.

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