Inflation comes in slightly above the forecast and remains above the upper boundary of the CNB’s tolerance band in August 2020

The CNB comments on the August 2020 inflation figures

According to figures released today, the price level increased by 3.3% year on year in August 2020. Inflation was slightly lower than in July 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 3.3% year on year in August.

The August annual consumer price inflation figure was 0.1 percentage point higher than the CNB’s current forecast. As in July, core inflation was higher than forecasted, reflecting the fading of previously strong domestic demand and temporarily elevated growth in corporate costs. This deviation was almost fully offset by lower-than-forecasted annual food price inflation, a deeper-than-expected fall in fuel prices and lower first-round effects of changes to indirect taxes due to smaller price impacts of the March increase in excise duty on cigarettes. 

The observed August slowdown in inflation is in line with CNB’s current forecast. According to the forecast, inflation will remain above 3% until the end of this year, as firms’ loss of revenue during the coronavirus pandemic and growth in their costs will foster continued price growth despite a deep decline in demand and overall economic activity. Inflation will fall markedly at the start of next year in connection with lower growth in domestic costs, a slightly appreciating koruna and a cooling of the labour market. As regards the structure of inflation, this will be driven by core inflation and above all food prices. Administered price inflation will also decrease due to slower growth in electricity prices. By contrast, the fall in fuel prices stemming from the previous collapse of global oil prices will dissipate. Inflation will decrease towards the CNB’s 2% target over the monetary policy horizon and stay close to target in 2022.

Petr Král, Executive Director, Monetary Department