Growth of consumer price indices (inflation) accelerated to 2.8% year on year (chart), according to the flash estimate released by the Czech Statistical Office (CZSO)

Month on month, inflation rose by 0.5%, while the development came as a disappointment to market analysts surveyed by the Czech Press Agency (CTK).

“The May inflation confirmed the prevailing mood on the market that the April drop below 2% was just temporary. However, the force of the May growth surpassed all expectations,” an economist at UniCredit Bank, Patrik Ružomberský, was quoted as saying by CTK.    

In April, inflation eased to 1.8% y/y, taking local market analysts by surprise, as the news came amid a series of cuts to the economic growth, in response to uncertainties in international trade and expectations of further inflationary pressures, particularly in services.   

“From the point of view of the central bank, a further strengthening of price pressures in services is unpleasant,” an analyst at KBC’s local branch ČSOB, Dominik Rusinko, told CTK.   

Price growth in services accelerated to 4.9% y/y, up from 4.7% registered in April, while food, alcohol and tobacco were up by 4.8% (3.3% in April). Energy was the only monitored sector, where prices fell (-6.2%) y/y.   

Local analysts do not expect the Czech National Bank to continue the policy of lowering interest rates at its next board meeting later in June and project fluctuating developments in inflation growth in the coming months.

The CNB lowered the main interest rate to 3.50% in May, returning to the policy of lowering it after a pause in March when it kept the rate at 3.75%.

“There is an agreement that room for further lowering of rates is limited,” CNB governor Aleš Michl said at a press conference following the May board meeting, as quoted as saying by the CTK and other Czech media. He added that “further lowering is conditioned by a decrease in pro-inflationary risks in the domestic economy.”