Inflation comes in above the CNB forecast in May 2022; it will slow towards the 2% target next year

The CNB comments on the May 2022 inflation figures

According to figures released today, the price level increased by 16% year on year in May 2022. Inflation thus increased markedly further, significantly 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 15.7% year on year in May. 

The annual increase in consumer prices in May was roughly one percentage point higher than expected in the CNB’s spring forecast. The upward deviation of inflation was due to all its components except changes to indirect taxes. Core inflation was the main contributor to the deviation, with fuel prices also contributing significantly. Food prices and administered prices were only slightly higher compared with the spring forecast.

May 2022 year-on-year in %
MPR Spring 2022 actual value
CPI 14.9 16.0
Administered prices 22.7 23.2
First-round impacts of changes to indirect taxes 0.3 0.3
Adjusted for changes to indirect taxes    
Prices of food, beverages, tobacco 11.5 11.8
Core inflation 12.7 13.9
Fuel prices 36.8 44.8
Monetary policy-relevant inflation 14.6 15.7

Core inflation reflects still strong producer price inflation abroad, driven by the difficult situation with material and component supplies and rising oil prices, as well as the peaking of exceptionally strong domestic cost and demand pressures. The latter are particularly visible in the prices of consumer goods within core inflation, especially clothing, footwear, household equipment and furnishings, and leisure-related goods. Within core inflation, the contribution of the cost of owner-occupied housing in the form of imputed rent is close to its peak. As expected, the significant surge in administered price inflation reflects continued growth in gas and electricity bills for households. The increase in energy prices on exchanges to record highs was also fostered by Russia’s invasion of Ukraine. The war is also reflected in increasing food prices due to soaring prices of agricultural commodity prices, as Ukraine is one of the world’s leading wheat exporters. The marked increase in oil prices as a result of the continuing war and sanctions on Russian oil exports to the EU has also been reflected in exceptionally high year-on-year growth in fuel prices. 

According to the baseline scenario of the spring forecast, inflation was expected to peak at around 15% from May onwards. Ongoing growth in gas and electricity prices for households, further acceleration in food price inflation and high core inflation will persist for the rest of this year according to the forecast, keeping inflation in double digits. The forecast expects inflation pressures to start decreasing in the course of the year, owing to a fading of the currently strong growth in import prices, a decline in domestic profit margins and a curbing of wage growth. Next year, cost pressures will moderate further as import prices stabilise and then fall slightly. Inflation will drop below 10% in early 2023 due to an unwinding of the current exceptional price pressures, the CNB’s interest rate increases to date and an expected exchange rate appreciation close to CZK 24 to the euro. At the same time, the CNB’s forceful monetary policy is helping to anchor the inflation expectations of firms and households. As a result, inflation will decrease towards the 2% target next year. 

The published data on inflation in May are an inflationary risk to the baseline scenario of the spring forecast and to the scenario featuring a more distant monetary policy horizon than the standard one used in the CNB’s forecasting system. Consistent with the baseline scenario of the forecast is a further sharp rise in market interest rates until mid-2022.

Petr Král, Executive Director, Monetary Department