Monthly consumer price inflation (inflation)
1.9
% yoy total
Current value
1.4
% yoy
Last month's value
Monthly consumer price inflation (inflation)
Comments
March core inflation showed the CNB unpleasant news
The March acceleration in consumer price inflation to 1.9% was not surprising in itself, but the acceleration in core inflation to 2.9% was less favourable, including the momentum across key segments. This indicates that price pressures in the domestic economy remain strong, especially for labour-intensive services and imputed rents, but also the koruna no longer provides a disinflationary factor for goods prices, amid strong household demand. For the Czech National Bank, the March core inflation is a hawkish signal that may reinforce interest rate growth expectations, especially if the current energy shock persists.
March inflation held back by food, but core prices continue to push retail prices
March inflation accelerated to 1.9% year-on-year in March, mainly reflecting higher fuel prices. However, the acceleration was somewhat milder than expected, helped by lower food prices. However, preliminary data suggest an acceleration in core inflation to 2.8%, which is not surprising given the still strong growth in retail sales. Although these did slightly correct the previous strong increase in January in the core segment in February. However, the strength of demand is relatively limited given the rather sluggish sales in services in the first two months of the year. The central bank will monitor the dynamics of these demand pressures, wages and core inflation, which will determine the speed and extent of its interest rate hikes in the coming months. Stronger demand is also translating into more robust imports, shrinking the foreign trade surplus that has not yet been affected by the energy price shock.
February inflation surprised with a slowdown to 1.4% mainly due to food
Comment by Jaromír Šindel, Chief Economist of the CBA: February consumer inflation pleasantly surprised the consensus and the central bank by slowing to 1.4% year-on-year. The inflation was mainly helped by a further decline in food prices, but also by a slightly milder rise in services prices. However, the energy shock due to the Iran war, together with still higher core inflation, is likely to pull annual consumer price growth back to an average 1.7% for the rest of the half-year. Details on core inflation, and hence services prices, will be important for both the inflation outlook and the central bank's interest rate outlook in the context of continued wage and unit labour cost growth (see charts below for market developments).
Cheaper electricity has distorted the inflation picture, while core remains strong
Comment by Jaromír Šindel, Chief Economist of the CBA: January's significant slowdown in consumer prices to 1.6% year-on-year mainly reflected the transfer of contributions for renewable energy from household invoices to the state budget. By contrast, core inflation eased slightly to 2.7% y/y from 2.8% at the end of last year. Food prices, which had contributed significantly to the moderation of inflation at the end of last year, rose in January, but less than would have been seasonally consistent. Consumer price growth is expected to reach around 1.7% yoy this year, following a 2.5% rise in 2025, but with core inflation still rising at around 2.5%, this will also require a disinflationary impulse, which is not yet coming from the property market segment, for example. Higher core inflation should keep the CNB interest rate steady at 3.5%, although the market is pricing in a slight cut, as are half of the CBA forecast panelists.
January inflation slowed, but demand pressures did not
Comment by Jaromír Šindel, Chief Economist of the CBA: The significant slowdown in consumer prices to 1.6% year on year in January did not surprise the consensus and mainly reflects lower energy prices, but also food and fuel prices. On the contrary, I expect core inflation to remain at at least 2.8% growth from the end of last year. Although core retail sales corrected with a 0.6% month-on-month decline in December, annualized momentum, along with household plans, remains strong and does not suggest easing demand pressures. Thus, even in light of fiscal plans, interest rate stability appears to be an appropriate stance for the central bank, at least for the coming months. This is inconsistent with interest rate market targeting, but in my view this would require significantly lower core inflation pressures.
Service prices as a signal for setting (i.e. falling) CNB interest rates
Comment by Jaromír Šindel, Chief Economist of the CBA: The analysis summarizes the government's regulatory steps that will further slow consumer price growth this year, probably well below 2%. What does this mean for the CBA, which seems to be starting to deflate the pigeon balloons, at least more than at the end of last year? Given its earlier communications, where inflation is headed in 2027 should be key, which will also indicate the direction of core inflation in the months ahead. And it is not just the case of still strongly rising services prices that are the focus of this analysis, the first part of the triptych ahead of the CNB's February board meeting.