Česká národní banka

The CNB comments on the February 2018 inflation figures

9 Mar 2018

Inflation comes in well below the CNB forecast in February

According to figures released today, annual inflation stood at 1.8% in February. Inflation thus moved below the CNB’s 2% target for the first time in more than a year. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 1.7% year on year in February.

Inflation was 0.4 percentage point below the CNB’s forecast in February. This was due to a combination of downward deviations from the forecast for all consumer basket items (except for the first-round effects of changes to indirect taxes). In particular, annual food price inflation was lower than expected, accounting for around one-half of the total deviation from the forecast. Core inflation also lagged behind the CNB’s expectations in February, as did annual growth in administered prices. The decline in fuel prices was rather greater than forecasted by the CNB. The first-round effects of changes to indirect taxes were fully in line with the forecast in February.

The published figures represent an anti-inflationary risk to the CNB’s current forecast. The forecast had expected inflation to stay above the 2% target in 2018 and return to it at the start of the monetary policy horizon. Nevertheless, the overall fundamental inflation pressures remain strong, mainly reflecting accelerating wage growth amid robust economic growth. The figures released today on wage growth in 2017 Q4 confirm the inflationary effect of the domestic economy and the labour market. Growth in domestic costs will record a further short-term increase owing to labour market tightness. Domestic cost pressures will then moderate, aided by a stabilising effect of monetary policy. However, they will continue to outweigh the anti-inflationary effect of import prices, which mainly reflect a strengthening koruna this year. At the same time, the one-off factors that increased inflation last year have now fully disappeared. Inflation will be just below the CNB’s 2% target at the monetary policy horizon, i.e. in the first half of 2019.

Tomáš Holub, Executive Director, Monetary Department