The CNB issues Inflation Report IV/2009

At its meeting on 12 November 2009, the Bank Board of the Czech National Bank approved this year´s fourth Inflation Report, which is one of the core elements of the central bank´ s communication with the public in the inflation-targeting regime. An important part of this quarterly document is a forecast for the Czech economy, representing 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 current report is based on information available as of 23 October 2009.

The forecast described in this report expects inflation to be at near-zero values in the last quarter of this year and in 2010 Q1. It will then start increasing and at the monetary policy horizon (in 2010 Q4 and in 2011 Q1) it will be slightly above the 2% inflation target. Monetary-policy relevant inflation, i.e. inflation adjusted for the effects of changes to indirect taxes, will be below headline inflation in 2010 and at the beginning of 2011 and at the monetary policy horizon it will gradually approach the CNB target from below. The economic decline bottomed out and the forecast expects the Czech economy to show quarter-on-quarter growth in 2009 H2. However, the sharp fall in GDP observed at the start of the year will pass through to a year-on-year decline in GDP also for the remainder of the year. The Czech economy is expected to decline by 4.4% year on year in 2009 but should return to moderate growth in 2010 (1.4%). This growth, however, will be supported chiefly by an upswing in the economy at the end of this year, since in 2010 it will slow again. In 2011, economic growth will strengthen again due to a more pronounced recovery in external demand and gross domestic product will grow at a rate of more than 2%. The nominal exchange rate of the koruna at the forecast horizon is roughly stable with a tendency towards very modest appreciation in 2011. Consistent with the forecast is a decline in market interest rates this year followed by their gradual rise during 2010.

Selected macroeconomic indicators

    2009 2010 2011
GROSS DOMESTIC PRODUCT        
GDP %, y-o-y, real terms, sa -4.4 1.4 2.2
PRICES        
Consumer Price Index %, y-o-y, fourth quarter 0.1 2.4 2.1
Monetary-policy inflation %, y-o-y, fourth quarter 0.1 1.5 2.1
LABOUR MARKET        
Average monthly wages in monitored
organizations
%, y-o-y, nominal terms 2.6 2.2 3.9
Registered unemployment rate %, average 8.4 9.8 10.7
PUBLIC FINANCE*        
Public finance deficit (ESA95) bn. CZK, current prices -220.1 -185.9 -223.0
Public finance deficit / GDP %, nominal terms -6.0 -4.9 -5.6
Public debt / GDP %, nominal terms 35.7 39.2 43.2
EXTERNAL RELATIONS        
Trade balance bn. CZK, current prices  170.5 160.0 190.0
Current account of balance of payments / GDP % -1.1 -0.8 -0.8
CZK/USD average 19.1 17.9 18.1
CZK/EUR average 26.4 25.7 25.5
INTEREST RATES        
3M PRIBOR  %, average 1.9 1.6 2.4

*CNB's estimate