Inflation comes in slightly below CNB forecast in July
The CNB comments on the July 2018 inflation figures
According to figures released today, annual inflation slowed to 2.3% in July. It thus remains in the upper half of the tolerance band around the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 2.2% year on year in July.
Inflation was 0.3 percentage point below the CNB’s forecast in July. This was due solely to food prices. The sharp decline in their growth mainly reflected prices of traditionally volatile items such as fruit and vegetables, which display a strong but unstable seasonal pattern. By contrast, core inflation increased considerably in July, exceeding the CNB’s expectations. For some time now it has been reflecting the effect of rapid growth of the domestic economy and accelerating wage growth, and it now also reflects the recent depreciation of the koruna. The combination of these factors probably contributed to the marked acceleration in growth in prices of foreign package holidays within core inflation which occurred in July. Administered prices, fuel prices and the first-round effects of changes to indirect taxes were in line with the forecast in July.
On the one hand, the released figures suggest that one of the partial risks identified in the statement issued after the CNB Bank Board’s August monetary policy meeting is materialising. The Board stated that the inflation outlook for the coming months in the area of food and fuel prices represented a short-term downside risk to the forecast. On the other, however, the new data tend to confirm the qualitative message of the CNB’s latest forecast. According to the forecast, the overall fundamental inflation pressures are strong and will rise even further in the short run, owing mainly to buoyant wage growth in the domestic economy. At the same time, the anti-inflationary effect of import prices is fading, reflecting the recent depreciation of the koruna. In the subsequent period, however, the overall inflation pressures will ease owing to continued growth in interest rates, renewed appreciation of the koruna and slower wage growth. Inflation will thus return to the CNB’s 2% target from above at the monetary policy horizon. During 2020, it will stay close to the target.
Tomáš Holub, Executive Director, Monetary Department
Inflation comes in slightly below CNB forecast in July
The CNB comments on the July 2018 inflation figures
According to figures released today, annual inflation slowed to 2.3% in July. It thus remains in the upper half of the tolerance band around the CNB’s 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes rose by 2.2% year on year in July.
Inflation was 0.3 percentage point below the CNB’s forecast in July. This was due solely to food prices. The sharp decline in their growth mainly reflected prices of traditionally volatile items such as fruit and vegetables, which display a strong but unstable seasonal pattern. By contrast, core inflation increased considerably in July, exceeding the CNB’s expectations. For some time now it has been reflecting the effect of rapid growth of the domestic economy and accelerating wage growth, and it now also reflects the recent depreciation of the koruna. The combination of these factors probably contributed to the marked acceleration in growth in prices of foreign package holidays within core inflation which occurred in July. Administered prices, fuel prices and the first-round effects of changes to indirect taxes were in line with the forecast in July.
On the one hand, the released figures suggest that one of the partial risks identified in the statement issued after the CNB Bank Board’s August monetary policy meeting is materialising. The Board stated that the inflation outlook for the coming months in the area of food and fuel prices represented a short-term downside risk to the forecast. On the other, however, the new data tend to confirm the qualitative message of the CNB’s latest forecast. According to the forecast, the overall fundamental inflation pressures are strong and will rise even further in the short run, owing mainly to buoyant wage growth in the domestic economy. At the same time, the anti-inflationary effect of import prices is fading, reflecting the recent depreciation of the koruna. In the subsequent period, however, the overall inflation pressures will ease owing to continued growth in interest rates, renewed appreciation of the koruna and slower wage growth. Inflation will thus return to the CNB’s 2% target from above at the monetary policy horizon. During 2020, it will stay close to the target.
Tomáš Holub, Executive Director, Monetary Department