CNB issues Inflation Report I/2011

• The new macroeconomic forecast expects inflation to be close to the 2% target in 2011 and 2012
• Economic growth will slow this year, owing chiefly to fiscal restriction, an unwinding of the investment boom observed in 2010 and weaker growth in external demand; growth will accelerate in 2012
• The nominal exchange rate of the koruna is gradually appreciating at the forecast horizon
• Consistent with the forecast is stability of market interest rates close to their current levels initially, followed by a gradual rise in rates as from the end of 2011.

At its meeting on 10 February 2011, the Bank Board of the Czech National Bank approved this year’s first Inflation Report. The Report is one of the core elements of the central bank’s communication with the public in the inflation-targeting regime. An important part of the Inflation Report is a description of the CNB’s quarterly macroeconomic forecast. The forecast is a key input for monetary policy decision-making. The inflation forecast and the assumptions underlying it are published with the aim of making monetary policy as transparent, comprehensible, predictable and therefore credible as possible. The CNB submits the Inflation Report to the Chamber of Deputies of the Czech Parliament twice a year for review.

The forecast described in Section II of the Report expects annual headline inflation to be close to the inflation target in 2011 and 2012. Monetary-policy relevant inflation, i.e. inflation adjusted for the first-round effects of changes to indirect taxes, will rise further and will also be close to the target. According to the forecast, economic growth will slow in 2011, owing chiefly to fiscal restriction, an unwinding of the temporary investment boom and a slowdown in external economic activity growth.

In 2012, domestic economic growth should accelerate considerably, due to all GDP expenditure components. As regards the labour market, the forecast expects only a gradual slowdown in the unemployment rate and a pick-up in wage growth. The nominal exchange rate is gradually appreciating at the forecast horizon. Consistent with the forecast is stability of market interest rates close to their current levels initially, followed by a gradual rise in rates as from the end of 2011. In addition to the baseline scenario of the forecast, three alternative scenarios were drawn up, capturing the risks stemming from developments abroad.

• Full text of the Inflation Report (pdf, 5.1 MB)
• Key macroeconomic indicators (xls)
• Tables and charts from the Inflation Report (xls)
• Current CNB forecast

Marek Petruš, CNB spokesman

Selected macroeconomic indicators