Česká národní banka

The CNB comments on the June 2017 inflation figures

12 Jul 2017

Inflation comes in slightly below the CNB forecast in June 2017

According to figures released today, the price level increased by 2.3% year on year in June 2017. Inflation thus remains in the upper half of the tolerance band around the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 2.4% year on year in June.

Annual headline inflation was 0.3 percentage point lower in June than forecasted by the CNB. The deviation of inflation from the forecast thus increased further compared to April and May, although only marginally. The lower-than-expected inflation was due in equal measure to food prices and fuel prices. By contrast, core inflation was again slightly higher than forecasted. Core inflation has been reflecting continued domestic economic growth and increased wage growth for some time now. Conversely, the inflationary effect of import prices is now unwinding owing to the appreciation of the koruna following the exit from the CNB’s exchange rate commitment coupled with the slower growth in euro area producer prices observed in recent months. The non-market components of inflation, i.e. administered prices and the first-round effects of changes to indirect taxes, were in line with the forecast in June.

The published figures represent a slight anti-inflationary risk to the CNB’s current forecast. This anti-inflationary risk mostly takes the form of external cost shocks, while the domestic economy is supporting continued elevated levels of inflation. According to the CNB forecast, inflation will continue to fluctuate in the upper half of the tolerance band for the rest of this year. It will return to the target at the start of next year and remain very close to it at the monetary policy horizon. This expected slowdown in inflation will be due to increasing growth in labour productivity, which will therefore offset to a greater extent the domestic cost pressures stemming from robust growth in wages and economic activity. At the same time, the effect of import prices will turn anti-inflationary again due to a further slowdown in foreign producer price inflation coupled with the forecasted appreciation of the koruna.

Tomáš Holub, Executive Director, Monetary Department