Czech inflation slows to 2.2% in October as food prices fall

Czech consumer price inflation further slowed down to 2.2% year-on-year in October from 2.3% in September, the Czech Statistical Office (CSU) reported on November 9.

The decline was driven mostly by weaker than expected growth in food and non-alcoholic beverages prices, which slowed down to 0.2% y/y in October, and by a reduction in clothing and footwear prices, which decreased by 2.4%.

The main driving force behind the growth of the price level in annual terms came from prices in housing (by 3.4%), water (by 1.8%), electricity (by 5.6%), gas and other fuels (2.7%).

ING Bank chief economist Jakub Seidler expects inflation to remain broadly similar until the end of the year. “For the full year 2018, we expect inflation to come in at 2.2%, but expect it to accelerate close to 3% in 1H19 as a combination of growth in core prices and energy prices. For 2019, we expect inflation to come in at 2.6%, identical to what the central bank expects in its latest forecast,” he wrote.

According to the Czech Central Bank (CNB) forecast, “core inflation will rise further in the short term but will return to 2% in the second half of next year. The forecast expects continued strong inflation pressures from the domestic economy, driving up prices in services in particular.

The previous depreciation of the koruna coupled with rising foreign producer price inflation will be reflected above all in the price of tradables in the coming quarters. These factors, together with the effect of the low comparison base in early 2018, will cause core inflation to rise to 2.6% at the start of 2019.”

The October inflation slowdown may, according to the analysts, cause a pause in the CNB’s interest rate rises. At the beginning of November, the board of the CNB hiked its main interest for the fifth time in a row, to 1.75%.

Komercni Banka analyst Viktor Zeisel predicts the gap between reality and the CNB's forecast will grow once November inflation is released.

conditional neutral