Inflation comes in slightly above the CNB forecast and well above the upper boundary of the tolerance band in October 2021
The CNB comments on the October 2021 inflation figures
According to figures released today, the price level increased by 5.8% year on year in October 2021. Inflation thus accelerated 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 5.6% year on year in October.
Annual consumer price inflation in October was 0.3 percentage point higher than expected by the CNB’s autumn forecast. The deviation of observed inflation from the forecast is due to a bigger rise in core inflation. Growth in imputed rent recorded an unexpectedly strong acceleration within core inflation. The CNB’s autumn forecast had flagged this as one of its inflationary risks. In addition, administered prices increased markedly faster, reflecting forced migration of some households to electricity and gas suppliers of last resort. The CNB’s autumn forecast had not expected the CZSO to capture this extraordinary and temporary effect in inflation. By contrast, growth in food prices did not pick up any further in October, so their contribution to inflation was thus lower than forecasted. The forecast for fuel prices materialised. Indirect taxes were unchanged in October.
Core inflation remained the biggest contributor to the rapid and broad increase in domestic consumer prices. The growth in this component is being driven significantly by the cost of owner-occupied housing (imputed rent), which has a relatively high weight in the domestic consumer price index – unlike in the euro area, for example – and reflects long-running rapid growth in property prices and prices in construction.
Prices of services and most goods are rising sharply. As in other countries, the increase in core inflation in the Czech Republic reflects a surge in consumer demand following the lifting of anti-epidemic measures. Moreover, this is taking place in an environment of strong growth in costs, which – together with making up for the loss of income they recorded during the shutdowns – retailers and service providers are passing through to prices. The current growth in costs stems both from the domestic economy, which is characterised by a renewed increase in labour market tightness and a strong consumer appetite, and from abroad. The latter mainly involves high industrial producer price inflation around the world due to persisting supply chain disruptions, accompanied by a significant rise in prices of energy, commodities and materials. Administered price inflation accelerated markedly in October, as the problems of some electricity and natural gas suppliers led to a sharp jump in prices of these energy items for households. A further increase in growth can be expected in this price category in the new year after the effect of the temporary waiver of VAT on electricity and gas approved by the government for November and December dissipates. Food price inflation did not accelerate further in October, reflecting above all a decline in fruit and vegetable prices. Fuel prices are continuing to record significant year-on-year growth due to global oil prices and base effects.
October 2021
year-on-year in %
MPR Autumn 2021
actual value
CPI
5.5
5.8
Administered prices
1.9
2.9
First-round impacts of changes to indirect taxes
0.2
0.2
Adjusted for changes to indirect taxes
Prices of food, beverages, tobacco
3.6
2.7
Core inflation
6.0
6.6
Fuel prices
28.2
28.3
Monetary policy-relevant inflation
5.4
5.6
The observed developments are qualitatively in line with the autumn forecast. The forecast expects inflation to rise significantly at the end of this year and approach 7% during the winter, with all its components contributing to the increase. The faster price growth will be driven by a further increase in core inflation, reflecting significant domestic price pressures and strong producer price inflation at home and abroad. This will be accompanied by rising food prices on the back of growth in agricultural commodity prices on world markets. Fuel price inflation will also remain high. Administered prices will rise significantly at the start of next year owing to growth in prices of electricity and natural gas for households. The strengthening domestic inflation pressures will reflect faster wage growth in the next few quarters. However, the overall inflation pressures will start to ease in the course of next year, especially as growth in import prices fades. This will be supported by an appreciating koruna. Inflation will gradually fall in the course of next year, aided by a prior significant increase in interest rates, and will decline close to the Czech National Bank’s 2% target over the monetary policy horizon, i.e. in late 2022 and early 2023.
The published data confirm the existence of strong and across-the-board inflation pressures from the domestic and foreign economies, which justify the interest rate increases made by the CNB so far.
Petr Král, Executive Director, Monetary Department
Inflation comes in slightly above the CNB forecast and well above the upper boundary of the tolerance band in October 2021
The CNB comments on the October 2021 inflation figures
According to figures released today, the price level increased by 5.8% year on year in October 2021. Inflation thus accelerated 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 5.6% year on year in October.
Annual consumer price inflation in October was 0.3 percentage point higher than expected by the CNB’s autumn forecast. The deviation of observed inflation from the forecast is due to a bigger rise in core inflation. Growth in imputed rent recorded an unexpectedly strong acceleration within core inflation. The CNB’s autumn forecast had flagged this as one of its inflationary risks. In addition, administered prices increased markedly faster, reflecting forced migration of some households to electricity and gas suppliers of last resort. The CNB’s autumn forecast had not expected the CZSO to capture this extraordinary and temporary effect in inflation. By contrast, growth in food prices did not pick up any further in October, so their contribution to inflation was thus lower than forecasted. The forecast for fuel prices materialised. Indirect taxes were unchanged in October.
Core inflation remained the biggest contributor to the rapid and broad increase in domestic consumer prices. The growth in this component is being driven significantly by the cost of owner-occupied housing (imputed rent), which has a relatively high weight in the domestic consumer price index – unlike in the euro area, for example – and reflects long-running rapid growth in property prices and prices in construction.
Prices of services and most goods are rising sharply. As in other countries, the increase in core inflation in the Czech Republic reflects a surge in consumer demand following the lifting of anti-epidemic measures. Moreover, this is taking place in an environment of strong growth in costs, which – together with making up for the loss of income they recorded during the shutdowns – retailers and service providers are passing through to prices. The current growth in costs stems both from the domestic economy, which is characterised by a renewed increase in labour market tightness and a strong consumer appetite, and from abroad. The latter mainly involves high industrial producer price inflation around the world due to persisting supply chain disruptions, accompanied by a significant rise in prices of energy, commodities and materials. Administered price inflation accelerated markedly in October, as the problems of some electricity and natural gas suppliers led to a sharp jump in prices of these energy items for households. A further increase in growth can be expected in this price category in the new year after the effect of the temporary waiver of VAT on electricity and gas approved by the government for November and December dissipates. Food price inflation did not accelerate further in October, reflecting above all a decline in fruit and vegetable prices. Fuel prices are continuing to record significant year-on-year growth due to global oil prices and base effects.
The observed developments are qualitatively in line with the autumn forecast. The forecast expects inflation to rise significantly at the end of this year and approach 7% during the winter, with all its components contributing to the increase. The faster price growth will be driven by a further increase in core inflation, reflecting significant domestic price pressures and strong producer price inflation at home and abroad. This will be accompanied by rising food prices on the back of growth in agricultural commodity prices on world markets. Fuel price inflation will also remain high. Administered prices will rise significantly at the start of next year owing to growth in prices of electricity and natural gas for households. The strengthening domestic inflation pressures will reflect faster wage growth in the next few quarters. However, the overall inflation pressures will start to ease in the course of next year, especially as growth in import prices fades. This will be supported by an appreciating koruna. Inflation will gradually fall in the course of next year, aided by a prior significant increase in interest rates, and will decline close to the Czech National Bank’s 2% target over the monetary policy horizon, i.e. in late 2022 and early 2023.
The published data confirm the existence of strong and across-the-board inflation pressures from the domestic and foreign economies, which justify the interest rate increases made by the CNB so far.
Petr Král, Executive Director, Monetary Department