Indirect taxes and the inflation forecast

The price effects of the changes to indirect taxes under consideration in the fiscal reform proposal are divided into two categories in the inflation forecast. The primary effect of the tax change is the price change corresponding exactly to the accounting increase in tax. In the specific macroeconomic environment, however, economic agents may raise their prices by more or less than this amount. Moreover, a response can be expected from other entities whose prices are not directly affected by the tax changes. Rising wage demands, for instance, can also be expected. The higher wage costs may in turn feed through into prices. These additional price impulses are included in the secondary effects of the changes to indirect taxes.

In the CNB's new forecast, the primary effect of the expected changes to indirect tax, i.e. the accounting effect on prices, is 1.0 percentage point. In the present low-inflation environment, bolstered by strong external anti-inflationary impulses and the highly competitive domestic market, the tax changes cannot be expected to have very strong secondary effects. Based on an assessment of past secondary effects, and taking the macroeconomic environment into consideration, the secondary price impacts can be estimated at roughly 0.4 percentage points.