The CNB comments on the May 2015 inflation figures
Inflation comes in above the CNB forecast in May
According to figures released today, the price level increased by 0.7% year on year in May 2015. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 0.5% year on year in May. Inflation is thus still below the lower boundary of the tolerance band around the CNB’s target.
Annual headline inflation was 0.4 percentage point higher in May than forecasted by the CNB. As in April, this deviation was due to annual growth in prices of food, beverages and tobacco, whereas the CNB had expected a fading moderate decline. Adjusted inflation excluding fuels was also higher than forecasted in May, recording a slight month-on-month increase, whereas the forecast had expected a slight decrease. The price developments in this consumer basket segment reflect the rapid growth of the domestic economy and a marked improvement on the labour market aided by easy monetary conditions, recovering external demand, low oil prices and rising government investment. By contrast, the direct pass-through of the weakened exchange rate of the koruna to inflation through import prices is unwinding and inflation abroad remains very subdued. As in April, administered prices saw marginally stronger year-on-year growth in May than the CNB had expected. At the same time, the year-on-year drop in fuel prices was somewhat smaller than forecasted. By contrast, the effects of changes to indirect taxes in May 2015 were in line with the forecast, reflecting on the one hand the two increases in excise duty on tobacco products last year and on the other hand the introduction of a second reduced VAT rate in January 2015.
The published data continue to confirm the opinion that the decision made in November 2013 to start using the exchange rate as an additional monetary policy instrument contributed significantly to averting the threat of deflation. The evolution of inflation in 2015 Q2 so far has exceeded the expectations of the CNB, which had predicted that inflation would rise, but to a smaller extent. The CNB forecast expects that growing economic activity and accelerating wage growth will continue to foster higher inflation, whereas import prices will slow inflation significantly this year. According to the forecast, both headline and monetary policy-relevant inflation will thus be close to zero on average in 2015. In 2016, they will rise to the CNB’s 2% target as the year-on-year fall in oil prices and the deflationary tendencies in the euro area dissipate.
Tomáš Holub, Executive Director, Monetary Department
The CNB comments on the May 2015 inflation figures
Inflation comes in above the CNB forecast in May
According to figures released today, the price level increased by 0.7% year on year in May 2015. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 0.5% year on year in May. Inflation is thus still below the lower boundary of the tolerance band around the CNB’s target.
Annual headline inflation was 0.4 percentage point higher in May than forecasted by the CNB. As in April, this deviation was due to annual growth in prices of food, beverages and tobacco, whereas the CNB had expected a fading moderate decline. Adjusted inflation excluding fuels was also higher than forecasted in May, recording a slight month-on-month increase, whereas the forecast had expected a slight decrease. The price developments in this consumer basket segment reflect the rapid growth of the domestic economy and a marked improvement on the labour market aided by easy monetary conditions, recovering external demand, low oil prices and rising government investment. By contrast, the direct pass-through of the weakened exchange rate of the koruna to inflation through import prices is unwinding and inflation abroad remains very subdued. As in April, administered prices saw marginally stronger year-on-year growth in May than the CNB had expected. At the same time, the year-on-year drop in fuel prices was somewhat smaller than forecasted. By contrast, the effects of changes to indirect taxes in May 2015 were in line with the forecast, reflecting on the one hand the two increases in excise duty on tobacco products last year and on the other hand the introduction of a second reduced VAT rate in January 2015.
The published data continue to confirm the opinion that the decision made in November 2013 to start using the exchange rate as an additional monetary policy instrument contributed significantly to averting the threat of deflation. The evolution of inflation in 2015 Q2 so far has exceeded the expectations of the CNB, which had predicted that inflation would rise, but to a smaller extent. The CNB forecast expects that growing economic activity and accelerating wage growth will continue to foster higher inflation, whereas import prices will slow inflation significantly this year. According to the forecast, both headline and monetary policy-relevant inflation will thus be close to zero on average in 2015. In 2016, they will rise to the CNB’s 2% target as the year-on-year fall in oil prices and the deflationary tendencies in the euro area dissipate.
Tomáš Holub, Executive Director, Monetary Department