Czech CPI holds steady at 0.1% in January defying expectations for decline

By bne IntelliNews February 9, 2015

Czech consumer price inflation remained in positive territory in January, defying market expectations for a decline as falling food and transport charges were offset by a rise in alcohol and utility and energy prices, the statistics office said on February 9.

The country's CPI edged up 0.1% y/y in January, the same as a month earlier. The market was expecting a 0.1% fall in January.

On a monthly basis, prices also ticked higher by 0.1%, versus a 0.1% drop in December. The rise was mainly driven by a strong monthly increase in alcohol and tobacco prices that helped neutralise the downward pressure from fuel prices, which registered 8.1% monthly drop in January. 

The January CPI reading was in line with the Czech National Bank’s (CNB) forecast for the month, bolstering the bank’s stance not to further ease its monetary policy for the moment. The market has been speculating in recent months that the bank might try to weaken the koruna further to stave off deflation but current data suggests no such move is necessary at the moment. 

At its meeting last week, the CNB maintained interest rates at effective zero. It also said it will not exit its intervention policy before the second half of 2016. Previously, it has guided that it would not pull out of the regime before 2016.

Yet, despite the fact that the January CPI figure was stronger-than-expected, it’s unlikely to reassure the CNB that deflation pressures are abating, analysts at Capital Economics wrote in a note. After all, core inflation fell to a 14-month low of 0.1% y/y from 0.4% y/y in December, the analysts note.

The CNB's new inflation report, published on February 5, significantly lowered the bank's outlook for full-2015, from 1.2% to -0.1%. The inflation outlook for next year was also dropped, with the new forecast now assuming interest rates will remain unchanged to the end of 2016.

  Jan-15 y/y  Dec-14 y/y  Jan-15 m/m 
Total 0,1 0,1 0,1
Food and non-alcoholic beverages -1,5 -0,5 0,8
Alcoholic beverages, tobacco 2,3 1,4 2,5
Clothing and footwear 4,5 4,0 -3,0
Housing, water, energy, fuel 1,2 -0,6 0,3
Furnishings, households equipment and maintenance 0,1 0,4 0,0
Health -6,2 -0,4 -9,1
Transport -4,6 -1,5 -2,8
Post and telecommunication -2,1 -2,3 0,2
Recreation and culture 0,8 0,1 1,5
Education 1,4 1,3 0,1
Restaurants and hotels 1,8 1,8 0,3
Miscellaneous goods and services 2,2 2,1 0,9
Source: Stats office      

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