Czech inflation rate increased by 2.5% year-on-year in January from 2.0% in December 2019, mostly due to increase in housing prices, according to the Czech Statistical Office data published on February 13. In month-on-month terms, consumer prices increased by 1%.
“Inflation thus increased into the upper half of the tolerance band around the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 2.4% y/y in January 2019,” said the Czech National Bank (CNB) in its commentary on inflation figures.
According to the analysts, a y/y inflation is expected to grow to 2.7% in the next months. Increasing energy prices at the beginning of the year will be accompanied by a gradual rise in food and fuel prices, the Czech News Agency reported.
“Inflation will continue to accelerate, showing that food prices have already reached their bottom in November, and this year, it is likely food prices will adopt increasing pace,” said UniCredit Bank analyst Patrik Rozumbersky.
Housing prices have now risen for several months in a row, prices of actual rentals for housing increased by 3.8% in January, “charges for both water supply and sewage collection by 2.6% (1.8% and 1.3%, respectively in December), electricity by 8.2% (5.6% in December), heat energy by 3.8% (1.0% in December)”, the Statistics Office reported.
“Inflation was 0.5 percentage point above the CNB’s forecast in January. This deviation was due mainly to higher core inflation and an earlier pick-up in food price growth compared to the forecast. Annual growth in fuel prices was also above the forecast in January, albeit only slightly. In line with the forecast, administered price inflation accelerated markedly in January. The first-round effects of changes to indirect taxes were also in line with the forecast,” CNB said, adding that inflation will return to 2% after a temporary increase at the beginning of 2019.
“Current inflation is a “lost battle” from the CNB's perspective, as its policy focuses mainly on inflation in the monetary policy horizon. And inflation is slowing down back to the target in a one-year horizon. This means that a short-lived period of higher inflation in 1H2019 will not be a sufficiently strong argument to imminently change policy. After a rather dovish February meeting, which stressed foreign uncertainty, we can hardly imagine another policy twist in March. As such, the May meeting is the earliest occasion for the next hike to be delivered by the CNB,” said ING Chief Economist Jakub Seidler.