Czech inflation eases to 2.4% in December

Czech inflation eases to 2.4% in December
Czech inflation fell to 2.4% in December 2017
By bne IntelliNews January 11, 2018

Czech inflation fell to 2.4% year-on-year in December, down 0.2pp, with the month-on-month rise in consumer prices staying at 0.1%, according to figures released on January 10 by the Czech Statistical Office.

According to preliminary calculations, the harmonised EU index of consumer prices (HICP) in the Czech Republic in December was 0.0%, month-on-month, and 2.2%, year-on-year.

Inflation has been falling the last two months but it remains above the central bank target of 2%, which will confirm the bank in its intention to keep gradually raising interest rates this year.

The regulator last raised its main interest rate by 25 basis points to 0.50% on October 2. The increase was the second 25bp hike since August when the central bank became Europe's first monetary regulator to commence a tightening cycle.

The central bank commented in its reaction to the inflation figures that it expects inflation to remain above its target range for most of this year and then move within the target range in late 2018 or early 2019. 

In a note Komercni banka analysts said by their calculations core inflation fell from 2.4% last month to 2.0%. They expect CPI inflation to remain around 2.5% in the first half of this year before falling towards the central bank target range. “This year, we expect the CNB will continue the hiking cycle by raising the repo rate every quarter. At the end of the year, the repo rate should stand at 1.5%,” Komercni said.

In a separate announcement on January 10 the statistics office confirmed that gross domestic product rose by 0.5% m/m and 5% y/y in the third quarter.  Household consumption, the main driver of GDP, grew by 3.8% y/y and 1.2% quarter-on-quarter. 

Household consumption has been propelled by rising incomes, up 3.1% y/y and 1.3% q/q in Q3. However, investment is starting to propel growth as well, having grown by 7% in two quarters in a row, as the high wage growth forces companies to modernise.

“According to our outlook, the Czech economy slightly sped up at the end of last year toward 5.5%, mainly due to higher investment, which should grow at a double-digit pace,” Komercni said in a note. “This year, the Czech economy adds 3.6% on average, the main driver being domestic consumption and investment.”

Over the whole of 2017 the average inflation rate compared with the previous year was 2.5%, the highest figure for five years, with services up 2.9% and goods up 2.2%.

The statistics office said the m/m increase in consumer prices was primarily due to the growth of prices in food and non-alcoholic beverages, particularly vegetables. There were falling prices in clothing and footwear, and alcoholic beverages and tobacco.

Compared to December 2016, the biggest price moves were in food and non-alcoholic beverages, with flour up by 13.5%, eggs by 54.3%, yoghurts by 21.4%, fresh butter by 28.7%, and fruit by 10.8%.