Inflation accelerates in October 2023 in line with the CNB forecast due to the effect of last year’s energy savings tariff, but the process of returning to price stability in the Czech Republic is in no way disrupted by this effect

The CNB comments on the October 2023 inflation figures

According to figures released today, the price level increased by 8.5% year on year in October 2023. Inflation thus recorded a temporary significant acceleration. However, this was due solely to the technical factor of last year’s lower comparison base – fully as expected by the CNB and analysts. A sharp decline in prices of electricity for households was recorded in October 2022 owing to the statistical capture of the energy savings tariff and the waiver of the renewable sources fee. Adjusted for the effect of last year’s energy savings tariff, inflation would have slowed further to 5.8% in October 2023 (from 6.9% in September).  

Annual inflation was 0.2 percentage point higher in October than the CNB’s autumn forecast. This was due mainly to a less pronounced month-on-month decline in administered prices and to a lesser extent a somewhat stronger seasonal increase in food prices. These two consumer basket categories thus recorded slightly higher year-on-year growth in prices than forecasted. By contrast, core inflation slowed more markedly than forecasted. The decrease in fuel prices was also larger, but its effect on the deviation from the forecast is limited.

October 2023 year-on-year in %
MPR Autumn 2023 actual value
CPI 8.3 8.5
Administered prices 35.5 37.1
First-round impacts of changes to indirect taxes 0.1 0.1
Adjusted for changes to indirect taxes    
Prices of food, beverages, tobacco 3.8 4.1
Core inflation 4.3 4.2
Fuel prices -8.1 -8.6
Monetary policy-relevant inflation 8.2 8.4

Core inflation slowed further in October. It has been falling gradually for more than a year now, reflecting a fading of growth in prices of foreign inputs and a cooling of domestic demand. The latter is acting against a further increase in the profit margins of producers, retailers and service providers. Growth in goods prices slowed in particular, while growth in services prices moderated to a lesser extent. The decline in services price inflation was due to most categories, including imputed rent. The year-on-year growth of the latter halted in October, reflecting slower growth in construction work prices and a correction of new residential property prices due to higher interest rates.

Annual food price inflation slowed markedly further in October. This was due to declining global agricultural commodity prices and domestic agricultural producer prices, as well as subdued consumer demand. The year-on-year decline in fuel prices, which is still being affected by last year’s high comparison base due to Russia’s invasion of Ukraine, accelerated slightly in October after having slowed for several months.

The observed price developments bear out the expectations of the autumn forecast. After the temporary increase in October, annual inflation will slow in the final months of the year. In January 2024, after the effect of the energy savings tariff drops out, annual inflation will decline sharply to close to the 2% target. The aforementioned statistical effect will thus in no way disrupt the process of returning to price stability in the Czech Republic.

The strength and broad nature of the disinflationary trend is illustrated by low month-on-month price growth in recent months, including October. The disinflationary trend is evident mainly (but not solely) in the key segment of consumer prices – the price core, where price growth (core inflation) is now at low single-digit levels in annual terms. The forecast meanwhile assumes an increase in the administered component of energy prices for households (and firms) in January linked with the abolition of government energy distribution subsidies and the reintroduction of fees for renewable sources. The size of the expected increase is roughly in line with the statements made by the Energy Regulatory Office.

Petr Král, Executive Director, Monetary Department