National Bank decisions on monetary policy: >>>to increase the monetary policy rate to 7.00 % from 6.75%; >>>to raise the lending (Lombard) facility rate to 8.00% from 7.75%; >>>to keep the existing levels of minimum reserve requirement ratios

By RBJ
The annual inflation rate reached 16.76 percent in November 2022, i.e. above the forecast, after having fallen to 15.32 percent in October from 15.88 percent in September. The increase was driven, during this period too, especially by the hike in food prices, including VFE prices, but also by the stronger advance in the prices of non-food items and market services. Their impact was, however, markedly counterbalanced by the slower fuel price dynamics, amid the downward trend in oil prices, as well as the firewood price cap.
The annual adjusted CORE2 inflation rate posted a slightly faster upward movement in the first two months of 2022 Q4, contrary to forecasts, rising from 11.9 percent in September to 14.0 percent in November 2022, as a result of almost across-the-board price increases in the three core inflation segments.
The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) moved up to 14.6 percent in November from 13.4 percent in September. Furthermore, average annual CPI inflation rate and average HICP inflation rate went up to 13.1 percent and 11.4 percent respectively in November from 11.8 percent and 10.2 percent respectively in September 2022, remaining however below the levels prevailing in the region and the Baltic countries.
Economic activity increased in 2022 Q3 by 1.3 percent compared to the previous three months, the same as in Q2, thus significantly exceeding the forecasts, which makes it likely for excess aggregate demand to pick up again over this period, contrary to expectations.
By contrast, compared to the same year-earlier period, GDP growth continued to decelerate in 2022 Q3 – to 4.0 percent from 5.1 percent in Q2 – remaining, however, significant from a historical perspective. The economic growth was supported, this time round, mainly by gross fixed capital formation and only to a secondary extent by household consumption, while the contribution of net exports strongly re-entered negative territory, given that the annual growth rate of imports of goods and services exceeded notably that of exports thereof in terms of volume.
Against this background, the growth rate of the trade deficit accelerated considerably versus the same year-earlier period, despite the narrowing of the unfavourable differential between the lower annual change in import prices and that in export prices, whereas the annual dynamics of the current account deficit doubled.
The latest data and analyses point to a significant slowdown in economic growth in 2022 Q4 versus Q3, under the impact of the protracted war in Ukraine and the extension of the associated sanctions, implying nevertheless a robust GDP growth compared to the same period of 2021 amid a base effect.
The number of employees in the economy saw further rises in September-October 2022, yet notably lower than in H1.
…According to current assessments, the annual inflation rate will probably decline in 2023 Q1 in line with the latest medium-term forecast (November 2022), but will fall at a significantly faster pace afterwards, to reach one-digit levels in 2023 Q3 already. This is due to the extension of energy price capping and compensation schemes until 31 March 2025, concurrently with the changes made to these schemes starting 1 January 2023.
In the near run, the main drivers behind the decrease in the annual inflation dynamics will however be the disinflationary base effects associated with the sizeable hikes recorded previously by energy and fuel prices, as well as the relatively steeper downtrend of oil prices in recent months.