Graph of Risks to the Inflation Projection (GRIP)
2nd Situation Report 2019
The Monetary Department assesses the balance of risks to the Inflation Report I/2019 forecast as being broadly balanced. In the GRIP simulation, the effect of the individual risks arising from the newly published data is approximately neutral overall. The main upside risk to inflation and interest rates is faster observed growth in domestic consumer prices. However, this effect is balanced out by anti-inflationary new data from the domestic economy, especially slower wage growth in the market sector and lower household consumption growth. The deviations of the exchange rate and interest rates from the forecast so far in Q1 are negligible. As regards foreign variables, a higher outlook for producer prices in the effective euro area and a lower expected path of euro interest rates amid a reduced outlook for external demand growth offset each other.
Outside the GRIP simulation, the risks captured by the relevant sensitivity scenarios in Inflation Report I/2019 persist. This mainly concerns the risk of slower-than-forecasted exchange rate appreciation, as the outlooks of other entities continue to expect a weaker exchange rate amid a higher interest rate path at the one-year horizon compared with the CNB forecast. The unfinished negotiations on the exit of the UK from the EU still represent a significant risk, as a disorderly Brexit still cannot be ruled out. Uncertainties connected with protectionist tendencies in global trade also persist. A potential stronger cyclical slowdown of the global economy compared to the current outlooks is an additional downside risk to domestic inflation and interest rates.
