Czech inflation slows to new 2016 low in May

Czech inflation slows to new 2016 low in May
By bne IntelliNews June 9, 2016

Czech consumer prices rose 0.1% in May in annual terms, a sharp slowdown from the 0.6% rise the previous month, data released June 9 by the statistics office showed. It is the lowest inflation rate since the start of the year.

The consensus had been for the Czech CPI to show a more moderate fall to 0.4%. However, the deceleration of prices is being driven by a decline of regulated prices of natural gas, falling food and a high comparative base from last year. That suggests that inflationary pressures will remain largely absent for the rest of 2016.

“Given the current increase in commodity prices and still solid domestic economic growth we expect that the inflation will start rising from July and reach [the central bank’s target of] 2% at the beginning of next year,” Raiffeisen analyst Michal Brozka said in a note.

Battling against the threat of a decline into deflation, the Czech National Bank (CNB) board has suggested it could move to further weaken the koruna. Meanwhile, incoming governor Jiri Rusnok has made it plain that he would be more open to negative interest rates than the outgoing Miroslav Singer.

Prices of alcoholic beverages corrected their April increases, along with prices of other selected food items (cheese, fruit, milk), non-alcoholic beverages, clothing and footware, Ceska Sporitelna analysts said in a note. The expected increase in fuel prices (up 3.3% in monthly terms in the whole transport prices category) was not enough to compensate for these decreases. Prices of goods in total went down by 0.4% m/m, while prices of services rose by 0.2%.

“Higher inflation in 2H 16 will be also affected by domestic demand and increases in the wage costs of firms, which constitute currently the main pro-inflationary factors. However, this spillover of domestic demand pressures into prices will be softened by low inflation in the Eurozone through the high openness of the Czech economy,” the analysts add.

Division Year-on-year Month-on-month
March 16 April 16 May 16 May 16
Total 0.3 0.6 0.1 -0.2
Food and non-alcoholic beverages -0.2 -0.2 -0.4 -0.1
Alcoholic beverages, tobacco 0.3 0.5 0.4 -0.1
Clothing and footwear 0.1 0.1 0.1 0.0
Housing, water, energy, fuel 0.2 0.2 0.1 -0.1
Furnishings, households equipment and maintenance 0.0 0.0 0.0 0.0
Health 0.0 0.0 0.0 0.0
Transport -0.4 -0.3 -0.3 0.1
Post and telecommunication 0.0 0.0 0.0 0.0
Recreation and culture 0.2 0.2 0.1 0.0
Education 0.0 0.0 0.0 0.0
Restaurants and hotels 0.1 0.1 0.0 0.0
Miscellaneous goods and services 0.0 0.0 0.1 0.0