Graph of Risks to the Inflation Projection (GRIP)
4th Situation Report 2012
The model simulation results captured in the GRIP represent a broadly neutral balance of risks to the inflation forecast published in Inflation Report II/2012. A slightly anti-inflationary effect of foreign interest rates and industrial producer prices, combined with the domestic initial state (lower household demand in particular) and inflation, is roughly offset by a weaker koruna exchange rate during Q2.
Other risks and uncertainties lie outside the GRIP simulation. In view of the legislative situation in the debate on government budgetary consolidation measures, the probability of the alternative scenario described in Inflation Report II/2012 materialising is rising. This would mean an upside risk to headline inflation as a result of a VAT increase. For monetary-policy relevant inflation, by contrast, this risk is on the downside amid lower interest rates, chiefly via a weaker outlook for household consumption. The currently weaker exchange rate compared to the average for the course of the quarter used in the GRIP simulation represents an additional risk of higher inflation and interest rates. At the same time, the uncertainty surrounding euro area developments remains significant.
According to the Monetary and Statistics Department, the overall balance of risks to the Inflation Report II/2012 forecast is tilted to higher headline inflation and lower monetary-policy relevant inflation amid a lower outlook for interest rates in the spirit of the alternative scenario.
