Graph of Risks to the Inflation Projection (GRIP)
2nd Situation Report 2018
The CNB’s Monetary Department assesses the balance of risks to the Inflation Report I/2018 forecast as being slightly anti-inflationary and tilted to a slightly lower interest rate path. Observed inflation, which decreased faster than forecasted at the start of this year, turns out to be the greatest risk in the GRIP simulation. The other variables have an almost neutral effect. The forecasts for the koruna exchange rate and market interest rates are being fulfilled. The acceleration in wages and economic activity was only slightly below the forecast. The new data from the real economy are thus only slightly anti-inflationary in the simulation. The new outlook for external variables has a negligible effect.
Outside the GRIP simulation, the short-term inflation outlook is an additional slight downward risk, mainly due to slower growth in food commodity prices. However, all the above-mentioned risks might be partly offset by slower-than-forecasted appreciation of the koruna in the quarters ahead. The persistence of domestic fundamental inflation pressures, linked with continued labour market tightness and wage growth, remains an uncertainty of the forecast. Although wage growth is broadly in line with the forecast, it may stay high for a protracted period of time.