Graph of Risks to the Inflation Projection (GRIP)
6th Situation Report 2019
The Monetary Department assesses the risks to the Inflation Report III/2019 forecast as being rather substantial in both directions and slightly inflationary overall. In the GRIP simulation, the risks arising from the newly published data are slightly inflationary overall. The weaker-than-forecasted koruna in 2019 Q3 is an upside risk to inflation and interest rates. However, its effect is partly offset by a decrease in expected industrial producer price inflation in the euro area in the updated outlook for foreign variables. By contrast, the forecast for the Czech economy is largely materialising. From the perspective of the GRIP simulation, the deviations of the domestic variables from the forecast are therefore insignificant overall.
In addition, the risks and uncertainties described in Inflation Report III/2019 persist. These concern a potentially even sharper slowdown in external demand (going beyond the updated outlooks), as assumed in a sensitivity scenario in the latest Inflation Report. However, the external slowdown is not very visible in the domestic economy yet. The effect of external factors leading to a halt in the appreciation of the koruna has probably newly strengthened. The above-mentioned sensitivity scenario also led to a weaker koruna relative to the baseline scenario of the forecast, amid lower domestic interest rates. The impacts of protectionist measures in global trade and a disorderly Brexit remain sources of uncertainty. New uncertainties include oil price developments since mid-September and the potential financial and real impacts of the European Central Bank’s renewed unconventional monetary policy measures.
