Key items pull in the same direction

The housing component will be the main driver of inflation this month, mainly the imputed rent subcomponent, which we expect to rise 0.4% MoM (0.08% CPI effect). Paid rent will rise as well, by 0.8%. Paid rent is considered a reflection of rent prices and has been climbing in recent months.

The travel and transport component is projected to rise by 0.3% (0.05% CPI effect). Upon the collapse of airline Play, concerns arose about the possibility that other airlines would raise prices, thus affecting the October inflation measurement. In recent years, airfares have been a bit unpredictable in October, with a 2% decline in 2023 and then a 6% jump in 2024. Given the pattern seen in the past decade, though, it is fairly safe to say that fares tend to rise in October. According to our forecast, airfares will rise by 1.5% (0.03% CPI effect) between months, and Play’s insolvency will have only a limited impact on prices. Fuel prices, which have been on the decline recently, are expected to remain unchanged MoM and have no effect on the travel and transport component.

Although it looks as though end-of-sale effects have petered out for the most part, we measured a 0.8% MoM increase (0.03%) in clothing and footwear prices. Other key items set to rise between months are furniture and housewares, by 0.3% (0.02% CPI effect), and recreation and culture prices, which typically increase at this time of year and are also expected to rise by 0.3% (0.03%).

Inflation rooted in place

The September inflation measurement was in line with analysts’ forecasts and contained little that took us by surprise. By now, however, the oft-mentioned one-off items from autumn 2024 have dropped out of twelve-month measurements. We expect inflation to cling stubbornly to its current perch just above the 4% deviation threshold for the next few months. Our preliminary forecast for the months ahead is as follows:

• November: CPI to rise 0.1% (twelve-month inflation 4.1%) – Airfares fall, as usual for this time of year, offsetting rises in other key items.
• December: CPI to rise 0.4% (twelve-month inflation 4.1%) – Airfares spike during the holidays. Other items rise marginally.
• January: CPI to fall 0.2% (twelve-month inflation 4.2%) – Price list hikes and unit-based increases offset seasonal sales and falling airfares.

If our forecast materialises, inflation will measure 4.1% over the next few months and then inch upwards in January. January is the biggest question mark, primarily because of uncertainty about how the per-kilometre charge on motor vehicle use will affect the CPI measurement. Plans to enact legislation on a per-kilometre charge irrespective of energy source have been announced and are supposed to take effect at the turn of the year, but the bill of legislation has yet to be approved in Parliament. Clearly, the change will have some effect on the CPI. Fuel prices will fall markedly because excise taxes on petrol and oil charges on diesel fuel will be cancelled. On the other hand, the per-kilometre charge will be classified as a road toll according to SI and will affect that item in the CPI. SI points out that because there is no precedent for changes of this kind, it is difficult to predict what effect they will have. We do not plan to include the change in our forecast for January until it is clear that the bill of legislation will enter into force. According to our calculations, though, the impact will not be substantial.

As is noted above, inflation will hold steady at 4.1-4.2% in the months ahead. It has been hovering around 4% since the beginning of the year and will probably stay there for a while yet. If our forecast for the next few months is borne out, it will average 4.1% for 2025 as a whole. In its August forecast, the CBI projected average 2025 inflation at 4.2%. We expect inflation to ease gradually next spring and interest rate cuts to resume as summer approaches and the days grow longer.

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