Czech inflation surprised as it retreated to 2% y/y in April, as reported by statistics office CZSO on May 10. The result shows prices rose a full 0.6pp slower than in March.

The result in April follows the pattern seen across much of Central & Eastern Europe. A surge around the turn of the year has shown signs of fading in March and April, largely thanks to the lowered impact from oil and food.

The fall back in rising prices could trim recent hawkish hints from the Czech National Bank. The central bank spent the early months of the year insisting that inflation is likely to drop again, but since scrapping its cap on the koruna on April 6, it has hinted monetary policy could tighten further as soon as markets settle.

The CPI was flat on a monthly basis for a second month running. That follows gains of 0.8% in January and 0.4% in February.

“Czech headline inflation will remain just over 2% in coming months and it will probably stay below the latest CNB forecast,” write analysts at KBC. “Beside [the] stronger koruna, it will become another argument why the CNB should not speed up a start of its hiking cycle. For now, it seems the firmer koruna delivers sufficient tightening of the monetary conditions in the Czech economy.”

The stabilisation of global oil prices and low base from 2016, added to erratic food prices, continues to drive the price gains. Food prices had the biggest influence on the rise in April’s CPI, the CZSO notes. Next in order of influence were prices in 'transport'. The rise of automotive fuel prices slowed to 12.6% from close to 17% in March.

“On the other hand,” sums up Jiri Polansky at Erste, “domestic demand pressures are still solid”. In light of the erratic effects of commodities, rate setters have increasingly turned their focus onto core inflation.

“The slowdown in inflation decreases the possibility that CNB will increase policy rates this year,” the Erste analyst writes. “We still expect the first hike in 2H 18 with the risk tilted towards 1H 18. Nothing has changed from our point of view.”