July core inflation may ease CNB's hawkish tone
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
The slowdown in consumer price inflation to 2.7% in July brings two pieces of encouraging news. The first is a moderation in food prices. The second positive signal suggests that there could be a slowdown in core inflation - that is, price growth net of food, fuel, energy and other regulated items. How significant this moderation will be and how it will affect the inflation outlook for the rest of the year will be shown by more detailed data to be released on Friday. They will also give a hint as to whether the hawkish tone of the CNB's communication might be fading. The July figures suggest consumer price growth of around 2.5%-2.6% in the second half of the year; that is, an average of 2.6% year-on-year in 2025 after 2.4% last year.
If the estimated slowdown is confirmed and subsequently supported by the August data, this could affect market expectations for rates. Instead of the current stability, the outlook for 2026 could open up the possibility of a further base rate cut. Such a shift would likely represent a negative impulse for the koruna.
According to the preliminary estimate of the CZSO, annual consumer price inflation slowed to 2.7% in July 2025 from 2.9% in June. This result is in line with the analysts' consensus, but is slightly above the CNB's 2.5% forecast for Q3, following its 0.1% point overshoot in the previous month.
The 0.2%pt y/y moderation in July CPI growth was mainly due to a milder growth of food prices (down 0.18ppt y/y to 4.9%), with core inflation (-0.11%ppt) adding to the contribution.
On a month-on-month basis, prices increased by 0.5% in July, mainly due to seasonally higher holiday prices - a typical summer phenomenon, but one that usually fades in September. By contrast, food prices fell by 0.4% month-on-month in July, more than is normal for this month. Fuel prices rose by around 1.6%, in line with the typical seasonal trend.
Based on our preliminary estimate, the year-on-year rate of core inflation slowed slightly to 2.8% from 3% in June, which is close to the CNB's expectation (2.7% for Q3 2025). This estimate assumes a slight 0.13% month-on-month increase in prices of non-energy regulated items.
If these estimates are confirmed, this would imply surprisingly weak month-on-month seasonally adjusted core inflation growth of only 0.09%, compared to an average rate of 0.28% in the previous three months. This may reflect the impact of a stronger koruna, but also a correction in imputed rents or a more modest acceleration in core services price growth after a stronger slowdown in July. Annualized, this would correspond to growth of just 1.1%, which is not only below the midpoint of the CNB's inflation target, but also below its current core inflation forecast of 2.1% yoy for Q3 2026.
The CSO will publish the final July inflation data on 8 August, when the CNB will announce its core inflation estimate at 13:00 CET.
Both EURCZK and interest rates are waiting for a boost from inflation data¨
