Inflation comes in above the forecast in January 2021

The CNB comments on the January 2021 inflation figures

According to figures released today, the price level increased by 2.2% year on year in January 2021. Inflation thus declined slightly compared to December and is close to the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes also rose by 2.2% year on year in January.

The January annual consumer price inflation figure was 0.5 percentage point higher than the CNB’s current forecast. This deviation was due largely to food prices, which have been highly volatile in recent months. Their year-on-year growth unexpectedly recorded a slight acceleration in January, partly offsetting its surprising marked slowdown in December. Core inflation was also slightly higher than expected in January, staying at the December level. A slightly stronger-than-forecasted slowdown in administered price inflation acted in the opposite direction. The year-on-year fuel price decrease in January was in line with the forecast. The first-round effects of changes to indirect taxes in January were also as forecasted.

The deviation of the released figures from the CNB’s current forecast should be seen in the context of the extraordinary economic impacts of the peaking coronavirus pandemic. Consequently, huge uncertainty persists, affecting both economic life itself and the way it is captured by the statistical data. The CNB’s current forecast expects inflation to slow to levels close to the 2% target in the first quarter of this year. Inflation will fluctuate around the target for the rest of this year. The observed decline in inflation is due to a slowdown of the previously strong growth in food prices and administered prices. A decrease in core inflation in the first half of the year will reflect a continued weakening of growth in total costs. The disinflationary effect of the domestic economy will subsequently fade steadily as the economy gradually recovers from the pandemic. However, continued appreciation of the koruna will act in the opposite direction. Headline inflation will get slightly above the inflation target next year, owing mainly to an increase in excise duties. Monetary policy-relevant inflation, which looks past the first-round effects of changes to indirect taxes, will stabilise at the inflation target over the monetary policy horizon.

Petr Král, Executive Director, Monetary Department