June CPI core inflation growth keeps CNB interest rates stable

4. 7. 2025
5 min. reading
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
June CPI core inflation growth keeps CNB interest rates stable ilustrační foto

The June acceleration in consumer price inflation to 2.9% year on year was not surprising, but together with a likely further slight acceleration in core inflation to 3.1%, it was not pleasing. While the actual overshooting of the CNB's forecast remains weak (+0.1% points in both cases), the continued strong momentum in core inflation, combined with the still rather pro-inflationary growth of the economy, poses a risk to the CNB's outlook for core inflation at the annual horizon. This is likely to leave the CNB hawkish with the interest rate steady at 3.5% until at least autumn this year.

To moderate core inflation, we need: 1) softer pressure in the housing market (higher IRS rates and more stable bank account rates can dampen the decline in mortgage rates and esae demand for mortgages and real estate); 2) increased productivity in the economy to reduce inflationary pressures from wage growth (a key role here for the government's structural policies); and 3) a stronger crown.

A stronger crown reflects the CNB's more hawkish stance, with markets essentially not expecting a CNB rate cut on an annual basis, while the ECB is likely to head lower still and market outlooks for the Fed's interest rate are pricing in a 100 point rate cut. Thus, the interest rate outlook remains supportive for the krona (see Charts 5 and 6), but let's face it, it will be heavily influenced by the prospect of a Trump-EU tariff deal, which if it fails could reverse this combination into a weaker krona and lower euro rates.

June consumer price inflation: 2.9%
Annual consumer price growth accelerated to 2.9% in June 2025 from 2.4% in May, in line with analysts' expectations (2.9%) but again slightly above the CNB's forecast (2.8%), according to the CSO's preliminary estimate. On a month-on-month basis, consumer prices rose by 0.3%, mainly due to (not only) seasonal increases in core inflation, higher fuel prices, while food prices rose slightly on a seasonal basis.
The June acceleration in year-on-year CPI growth (0.5% pts) was mainly driven by higher food, alcohol and tobacco prices (0.15% pts to 5.5% y/y), plus core inflation (0.14% pts) and fuel prices (0.13% pts). This was partly offset by the moderation in regulated energy price inflation that we had anticipated (-0.04% p.p.).

Core inflation maintained its higher momentum.
According to our preliminary estimate, core inflation is likely to have accelerated to 3.1% y/y from 2.8% in May (again, 0.1% pps above the CNB's forecast of 3%). This assumes a slightly milder 0.15% m/m increase in non-energy administered prices.
If this is correct, then seasonally adjusted month-on-month core inflation would have accelerated to 0.35% in June from an average 0.28% month-on-month increase in the previous three months. This would imply faster annualized core inflation growth of 4.3% after 3.4% in the previous three months, which is above the midpoint of the CNB's inflation target and above its core inflation forecast of 2.2% y/y for Q2 2026.

The CSO will publish the final June inflation data on 10 July, when the CNB will announce its core inflation estimate at 13:00 CET.