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Imported disinflation – including weakness in commodities prices and the persistent drag from sterling – has triggered sharp downward revision to CPI projections in the near term. CPI inflation is expected to remain below 1% until the middle of next year. Domestic cost pressures, however, are projected to take CPI inflation back to the 2% target in late 2017 and above it from Q417 onwards.
Industrial production rose by 5.7% y/y in September. It had risen by 6.1% in the previous month. Investment also marked time, growing 10.3%, after 10.9%. Retail sales, in the other hand, grew a tad more rapidly, with an increase of 10.9%, as against the previous month's 10.8%.
Mortgage rates are likely to rise gradually in 2016, so the windfall effect will fade and acquisition costs will rise. How buyers will react is uncertain.
Low inflation is sustaining households' purchasing power. The tax cuts in the Solidarity Pact are having a positive effect on low-income households.
The structural deficit is gradually shrinking, falling from 2% of GDP in 2014 to 1.7% in 2015 and 1.2% in 2016. The public deficit is falling more slowly, however, partly due to a slight deterioration in the cyclical balance.
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