Česká národní banka

The CNB comments on the December 2018 inflation figures

10 Jan 2019

Inflation stays below CNB forecast in December 2018

According to figures released today, annual inflation stayed at 2% in December 2018. Inflation thus remains at the CNB’s target. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 1.9% year on year in December 2018. The average inflation rate for 2018 as a whole was 2.1%.

Inflation stayed 0.5 percentage point below the CNB’s forecast in December. As in the previous month, this deviation was due mainly to lower-than-expected annual growth in food prices. This was joined in December by a sharper slowdown in annual fuel price inflation, which is reflecting the decline in oil prices on global markets. Slower-than-forecasted growth in administered prices acted in the same direction. Conversely, core inflation was slightly higher than forecasted in December. The first-round effects of changes to indirect taxes were in line with the forecast.

The published figures represent an anti-inflationary risk to the CNB’s current forecast. According to the forecast, the overall fundamental inflation pressures in the domestic economy remain strong, owing mainly to buoyant wage growth and continued growth of the real economy. These factors are primarily affecting core inflation. In addition, import prices are acting in the inflationary direction, reflecting persisting growth in foreign prices and the weakened exchange rate of the koruna. At the start of this year, inflation will increase into the upper half of the tolerance band around the CNB’s target due to a further rise in core inflation, a renewed recovery in food price inflation and faster growth in administered prices. In the subsequent period, however, the overall inflation pressures will ease owing to growth in interest rates, renewed appreciation of the koruna and a gradual slowdown in wage growth. Inflation will therefore approach the CNB’s 2% target from above over the monetary policy horizon, i.e. in late 2019 and early 2020, and stay at the target during 2020.

Petr Král, Executive Director, Monetary Department