The CNB comments on the April 2020 inflation figures
According to figures released today, the price level increased by 3.2% year on year in April 2020. Inflation decreased compared with March but remained above the upper boundary of the tolerance band around the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes also rose by 3.2% year on year in April.
The April annual consumer price inflation figure was 0.2 percentage point higher than the CNB’s latest forecast. The positive deviation of inflation from the forecast was solely due to higher-than-expected core inflation. By contrast, the deviations of the other components of inflation from the forecast were small or zero. Growth in administered prices slowed a little more than forecasted. The drop in fuel prices, reflecting the collapse of global oil prices, was only slightly stronger than in the forecast. The first-round effects of changes to indirect taxes were slightly lower than expected due to a somewhat slower pass-through of increased excise duty on tobacco into cigarette prices. The forecast for rapid growth in food prices, reflecting high demand for food, labour shortages in agriculture in Europe and transport restrictions due to the coronavirus pandemic, fully materialised.
The observed slowdown in inflation is – bearing in mind the persisting great uncertainty regarding the economic impacts of the coronavirus pandemic – qualitatively broadly in line with the CNB’s latest forecast. The forecast expects inflation to return rapidly into the tolerance band around the target in the coming months, due mainly to the generally anti-inflationary impacts of the coronavirus pandemic amid a deep decline in domestic economic activity. Appreciably weaker domestic inflation pressures will outweigh the temporary inflationary effect of a weaker koruna. Inflation will therefore decline towards the 2% target at the end of this year. The decline in inflation will also be fostered by an already observed significant drop in fuel prices and by slower growth in administered prices. By contrast, food price inflation will remain high this year, owing to the inflationary effects of factors on both the demand and supply side. The decline in inflation will also be slowed this year and the next by the price impacts of changes to indirect taxes. As a result, inflation will be close to the CNB’s 2% target in 2021.
Petr Král, Executive Director, Monetary Department