Czech industrial producer prices index (PPI) for August increased by 0.1% m/m and by 3.3% y/y. That represents a slight slowing in inflation growth from the month before: in July, the growth accelerated to 3.4% y/y - the fastest increase since February 2012, the Czech Statistics Office (CSU) said on September 17.

Despite the slow down in the growth of inflation, prices are still very high and suggest the economy is running hot.

The main factors behind the increase in industrial prices are a lower statistical base from the previous year, weaker koruna, increasing price of the material and energy and high volume of orders, Raiffeisenbank analyst Frantisek Taborsky said.

“And we have to add increasing wage costs, which are caused by a steep increase of salaries and higher prices of oil,” he said, referring to wage inflation caused by the extremely tight labour markets.

Analysts expect industrial PPI will increase for the rest of 2018.

According to Komercni banka analyst Monika Junicke, the pressure on consumer prices will for these reasons continue and inflation won’t fall below 2%.

“The Czech National Bank will continue with hikes to the main interest rates once every quarter,” she said.

In February, the Czech industrial producer prices decreased by 0.4% m/m and by 0.3% y/y, whereas in June, PPI increased by 0.6% m/m and by 2.9% y/y, the biggest annual increase in last 14 months.

In annual terms, the biggest surges were recorded in coke, refined petroleum products. Basic metals, fabricated metal products increased by 4.1% y/y, electricity, gas, steam and air conditioning by 2.6% y/y, chemicals and chemical products by 8.1% y/y and mining and quarrying by 10.1% y/y.

On the other side, the biggest decrease was in food products, beverages, tobacco (-1%) and in transport equipment (-0.7%).

Agricultural producer prices decrease slowed down to -2.1% year-on-year in August after falling by -4.4% in July. In monthly terms, the prices increased by 1.3% in August.

Prices of crop products grew by 0.9% y/y, prices of animal products decreased by 5.2% y/y.

“The main reason is a strong statistical base in the last year,” Czech Fund chief economist Lukas Kovanda said. The disappointing harvest of potatoes and cereals has no effect, for now, he said.

Construction work prices increased by 0.3% m/m and by 3.5% y/y. Prices of market services for businesses grew by 0.2% month-on-month and expanded by 1.5% year-on-year.

Export prices increased by 0.4% m/m and by 1.8% y/y in July. “A significant effect on the development of the y/y export price index was the increase in the prices of ‘manufactured goods classified chiefly by material’ (4.3%). CSU said.

Import prices were rose by 0.6% m/m in June and by 2.5% y/y. The increase of the total annual import price index was driven chiefly by a 33% rise in mineral fuels, lubricants, and related products (primarily petroleum and petroleum products), CSU said.

“The terms of trade figures decreased to the value of 99.3% (99.8% in June) and the second month stayed in negative values. Negative values were reached by prices of mineral fuels, lubricants, and related products (89.5%) and chemicals and related products (99.7%),” CSU stated.

Positive was the development of manufactured goods classified chiefly by material (101.7%), machinery and transport equipment (100.2%) and miscellaneous manufactured articles (101%).