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IMAD Says Food Price Hikes Still to Come

Ljubljana, 02 February (STA) - The Institute of Macroeconomic Analysis and Development (IMAD), a government think-tank, said on Wednesday that while the effect of the global food price hikes on inflation in Slovenia has been moderate, this is expected to change.

IMAD director Bostjan Vasle told the press that based on IMF data the present year-on-year increase of the food price index stands at around 40%, with global food prices reaching the highest level in the last 20 years.

This hike has not yet been registered in prices covered by the Slovenian Statistics Office. "Core inflation remains moderate in Slovenia as well as in the entire eurozone, but expectations for the future are of course very different."

Vasle expects that prices in Slovenia will be affected, but not as strongly as in 2007 and 2008, when the last hikes of such dimensions were seen.

According to Vasle, the situation in Slovenia as well as on global markets has changed slightly since, as economic policies have implemented certain instruments that can help balance prices and influence relations between producers, manufacturers and retailers.

"The whole of Europe learnt something from the developments in 2007 and these lessons will probably contribute to the transfer of prices from the global market onto domestic prices being slightly different than two years ago."

On the other hand, the circumstances have also changed macroeconomically, especially on the labour market, with unemployment in Slovenia exceeding 110,000 people at the end of 2010.

Vasle also pointed to the growth in wages, which stood at 4% in the first 11 months of 2010. In the private sector, wages were up 5.2%, especially on account of the 22.9% increase of the minimum wage introduced in February.

He stressed that wages were the key factor determining competitiveness, especially for a small and open economy such as Slovenia's. While Slovenian competitiveness did not fall in the first three quarters of last year, improvements in competitiveness were noted in practically all EU member states.

Most growth indicators in Slovenia improved at the end of 2010, but are still below pre-crisis levels.

The recovery should continue, with IMAD expecting its forecast of 0.9% growth for 2010 to materialise despite a continuing deterioration of the situation in the construction sector.

IMAD also pointed to the IMF's January upgrade of the global growth forecast. The biggest improvements are forecast in the countries that Slovenia does most business with, including Germany.

On the other hand, the situation on financial markets continued to deteriorate at the end of 2010, Vasle added, noting that the bank write-downs and provisions continued to rise.

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