Core inflation did not contribute to the April inflation slowdown
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
Text update after the release of core inflation, 14:30.
The significant slowdown in consumer price inflation in April to 1.8% year-on-year from 2.7% in March and February has been confirmed. The slowdown mainly reflects a month-on-month decline in food prices in contrast to their increase last year, lower alcohol and fuel prices, as well as lower electricity prices.
For now, the seasonally adjusted data continued to show strong growth in imputed rents, with holidays, car purchases adding to April's drivers and food services and other goods and services remaining in (see Chart 3). Growth in actual rents slowed but remains brisk (0.3% MoM yoy).
In contrast to headline inflation, core inflation picked up its pace slightly to 2.6% MoM from 2.5% recorded in the previous three months.
The still higher growth rate of core inflation and a possible correction in food prices are likely to prevent consumer price inflation from slowing more significantly below our current forecast of 2.4% this year.
Although seasonally adjusted, core inflation slowed slightly to 0.21% m-o-m from an average growth of 0.27% in the first three months of this year. However, with annualized growth of 2.5%, this remains above the CNB's target (but for headline inflation). The seasonally adjusted figure looks somewhat disrupted for April, but the details point to stronger month-on-month growth in core services (excluding imputed rent) than in the first three months, with imputed rent continued to accelerate slightly to 0.5%.
The continued rise in core inflation, and especially in the services segment, is thus a hawkish signal for the CNB, in line with the higher FRA curve, which has been reflecting movements abroad in recent days (CZK FRA 12x15 again over 3%, EUR over 1.8%). The hawkish signal may be dampened by negative news from the economy. This does not include strong March economic activity, but a higher share of registered unemployed could (including graduates and teenagers, see Chart 6). Of course, for now, the rise in registered unemployment is not reflected in other labor market indicators (see Charts 5 and 7 or the discussion under GDP numbers here), but employment expectations remain more in negative territory.
Chart 1. Consumer price inflation slowed in April, but this is probably not true for core inflation
Chart 2: Seasonal adjustment brought a slightly disrupted message for core inflation in April, but with a basically unchanged story, i.e. still strong core inflation momentum in services
Chart 3: Main drivers of April (dis)/inflation: lower volatile food and fuel prices with alcohol vs. higher imputed rent and other services prices
Chart 4: In April, food, alcohol and transport prices showed lower-than-normal price movements (where it was about fuel prices, not car prices or transport services), as did clothing prices (but similar to last year) and health prices, and recreation prices (where prices of goods fell, but not those of tours, culture and books). In contrast, telecommunications and restaurant prices showed higher-than-usual movements.
Chart 5: The seasonally adjusted registered unemployment rate rose to 4.3% in April (see chart on the left). However, for the time being, the increase in registered unemployment (purple axis in the chart on the right) is not reflected in other labour market indicators.
Chart 6: Graduates and young people are also affected by the rise in unemployment, with their share of registered unemployment rising to 5.1% vs. 4.9% and 4.6% in the previous two years (3.9% in April 2018)
Chart 7: The number of newly reported and vacant vacancies remains above the 2024 level
Note: Unless otherwise stated, we use seasonally adjusted figures in the text. Annualized developments show possible year-on-year growth in the annual outlook if current month-on-month dynamics were to be maintained.