Implications of the unexpectedly slow growth in regulated prices
One of the important internal factors of the inflation forecast is the evolution of regulated prices. In connection with the current forecast, it should be borne in mind that inflation is relatively low and will remain so throughout the forecast period. This is due, among other things, to the fact that regulated price inflation has long been, and will probably continue to be, much slower than was expected when the inflation target for the 2002-2005 period was set. Chart IV.3 shows that if regulated prices had been rising at the assumed rate, the extent of the current undershooting of the inflation target would have been 50% smaller. In this event, inflation would have returned to the target band in October 2003, i.e. six months earlier than suggested by the current forecast. Inflation would have been within the target band (just below its mid-point) throughout the period of most effective transmission of monetary policy. Non-fulfilment of the expected yearly contribution of regulated prices to headline inflation (1-1.5 percentage points) is one of the CNB's "escape clauses" from hitting the inflation target (see Annex 1 to the April 2001 Inflation Report).