ANNUAL REPORT 2008 - Polymer Bank Notes of the World

and Bulgaria registered robust growth figures of,respectively, 7.1% and 6.0% in 2008, economicactivity in these countries also slowed morenoticeably towards the end of the year, followinga lengthy period of very high growth fuelled bybuoyant domestic demand and strong credit andwage growth, and supported by sizeable foreigndirect investment inflows.PRICE DEVELOPMENTSAverage annual inflation increased in 2008 inall non-euro area EU Member States (with theexception of Hungary) and, in inflation-targetingcountries, significantly exceeded inflation targets.The increase reflects the initial upward trendin inflation rates in most countries in the firsthalf of the year, which was later reversed. InDecember 2008 inflation was in most countrieslower than at the beginning of the year.The highest inflation rates were recorded inthe Baltic States and Bulgaria, where averageannual HICP inflation ranged between 10.6%and 15.3%. In the Czech Republic, Hungary andRomania, average annual HICP inflation wasbetween 6.0% and 7.9%, while in the remainingcountries – Denmark, Poland, Slovakia, Swedenand the United Kingdom – inflation was between3.3% and 4.2%.One of the main factors behind the broad-basedrise in inflation was common to almost all noneuroarea EU countries, namely a strong increasein the world prices of food and energy. Somecountries also implemented marked increases inadministered prices and indirect taxes, and in anumber of economies currency depreciation alsocontributed to the rise. Finally, in some casesbuoyant domestic demand, increasing capacityconstraints and agricultural supply shocksalso exerted strong upward pressure on wagesand prices.The factors driving the considerablemoderation in inflation later in 2008 werealso common to most countries. First, annualinflation rates started to decline as the effectsof the global commodity price shock of2007 and early 2008 faded and world pricesof oil declined significantly. Second, domesticdemand pressures eased in parallel with thedecline in economic growth in the previouslyfastest-growing economies, and later also inmost other non-euro area EU Member Statesas the financial crisis intensified. Nevertheless,wage pressures remained significant in a numberof countries, where real wage growth continuedto outpace productivity growth, leading tosignificant increases in unit labour costs.Table 7 HICP inflation in the non-euro area EU Member States and the euro area(annual percentage changes)2004 2005 2006 2007 2008 2008Q1Bulgaria 6.1 6.0 7.4 7.6 12.0 12.4 14.0 12.5 9.0Czech Republic 2.6 1.6 2.1 3.0 6.3 7.6 6.7 6.5 4.4Denmark 0.9 1.7 1.9 1.7 3.6 3.2 3.7 4.6 3.0Estonia 3.0 4.1 4.4 6.7 10.6 11.3 11.5 11.0 8.7Latvia 6.2 6.9 6.6 10.1 15.3 16.3 17.5 15.6 11.9Lithuania 1.2 2.7 3.8 5.8 11.1 10.8 12.3 12.0 9.4Hungary 6.8 3.5 4.0 7.9 6.0 6.9 6.8 6.3 4.2Poland 3.6 2.2 1.3 2.6 4.2 4.5 4.3 4.4 3.6Romania 11.9 9.1 6.6 4.9 7.9 8.0 8.6 8.2 6.9Slovakia 7.5 2.8 4.3 1.9 3.9 3.4 4.0 4.5 3.9Sweden 1.0 0.8 1.5 1.7 3.3 3.1 3.6 4.0 2.7United Kingdom 1.3 2.1 2.3 2.3 3.6 2.4 3.4 4.8 3.9EU9 1) 5.3 3.8 3.3 4.2 6.4 6.8 7.0 6.7 5.2EU12 2) 2.6 2.6 2.6 2.9 4.7 4.2 4.9 5.5 4.3Euro area 2.1 2.2 2.2 2.1 3.3 3.4 3.6 3.8 2.3Source: Eurostat.1) The EU9 aggregate comprises the nine non-euro area EU Member States that joined the EU on 1 May 2004 or 1 January 2007.2) The EU12 aggregate comprises the 12 non-euro area EU Member States as at 31 December 2008.2008Q22008Q32008Q4ECBAnnual Report200887