June CPI core inflation growth keeps CNB interest rates stable
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
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.
