Graph of Risks to the Inflation Projection (GRIP)
6th Situation Report 2022
The Graph of Risks to the Inflation Projection drawn up for the 6th Situation Report on Economic and Monetary Developments presents a comparison with the baseline scenario of the summer forecast. Consistent with that, the simulation is prepared with a monetary policy horizon of 18–24 months. This is reflected in the period for which the inflation deviation is plotted on the horizontal axis (2024 Q1).
Overall, the newly available information obtained since the summer forecast was prepared implies considerably higher levels of domestic inflation and interest rates overall in the GRIP simulation than in the summer forecast. The strongest factor in this direction is a revision of foreign variables, with higher outlooks for the European Central Bank’s interest rates and for the core and energy components of producer prices in the effective euro area playing a particularly strong role. The effect of the domestic real economy this year is also inflationary, due mostly to faster wage growth. By contrast, the lower inflation figures observed in Q3 so far and a revision of the administered price forecast as a result of the government’s newly planned ceiling on energy prices foster slightly lower inflation and interest rates. The somewhat stronger koruna in 2022 Q3 implies marginally lower domestic interest rates and inflation. Interest rates have a neutral effect in the GRIP simulation.
Outside the GRIP, more expansionary fiscal policy is an upside risk to inflation. The threat of inflation expectations becoming unanchored and the related risk of a wage-price spiral remain significant risks in the same direction. By contrast, the growing likelihood of recession abroad and a stronger-than-forecasted downturn in domestic consumer and investment demand are downside risks. The introduction of measures to limit growth in energy prices at the domestic or European level and a faster-than-expected decline in core inflation are additional anti-inflationary risks. The general uncertainties of the outlook include the future course of the war in Ukraine, the availability and prices of energy, and the future monetary policy stance abroad.