Inflation comes in above the CNB forecast and above the upper boundary of the tolerance band in July 2021

The CNB comments on the July 2021 inflation figures

According to figures released today, the price level increased by 3.4% year on year in July 2021. Inflation was thus considerably higher than in June, exceeding the upper boundary of the tolerance band around the CNB’s target. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 3.2% year on year in July.

The July annual consumer price inflation figure was 0.4 percentage point higher than the CNB’s current forecast. This deviation was due to faster core inflation and food price inflation, while the other components of inflation were in line with the forecast. As in previous months, core inflation was the biggest contributor to the annual inflation. Its increase reflects stronger growth in services prices, but growth in goods prices is accelerating too. Growth in services prices has recently been driven by imputed rent in the context of marked growth in property prices and prices in construction. Following the reopening of the economy, price growth in hotels and restaurants accelerated further in July. Food price inflation remains volatile. In July it was affected mainly by an unwinding of the decline in meat and vegetable prices.

  year-on-year in %
July 2021 MPR Summer 2021 actual figure
Consumer Price Index 3.0 3.4
Administered prices -0.1 -0.1
First-round effects of changes to taxes 0.2 0.2
Adjusted for changes to indirect taxes    
Prices of food. beverages and tobacco 1.3 1.8
Core inflation 3.5 3.8
Fuel prices 20.3 19.8
Monetary policy-relevant inflation 2.9 3.2

According to the current forecast, annual consumer price inflation will rise above the upper boundary of the tolerance band around the 2% inflation target in the second half of this year. This will be due to an upswing in food price inflation coupled with continued high core inflation and strong fuel price inflation. These will later be joined by renewed administered price inflation. The currently strong overall inflation pressures will start to ease gradually at the end of this year. This will be due partly to a slowdown in the currently rapid growth in import prices. Domestic price pressures will continue to rise slightly for some time yet, mainly on the back of increased consumer demand and a gradual pick-up in wage growth. The latter will be supported by a further marked increase in the minimum wage at the start of next year. Next year, inflation will return towards the 2% target, aided by this year’s tightening of monetary conditions.

Luboš Komárek, Deputy Executive Director, Monetary Department