The CNB comments on the September 2021 inflation figures
According to figures released today, the price level increased by 4.9% year on year in September 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 4.7% year on year in September.
The September annual consumer price inflation figure was markedly higher than predicted by the CNB’s summer forecast, drawn up during July. The deviation of observed inflation from the forecast, which had already been visible in August, widened further in September. It was due predominantly to an unexpectedly sharp pick-up in core inflation and substantially faster growth in food prices. Administered price inflation and fuel price inflation were also somewhat higher than forecasted.
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.
As in other countries, the increase in inflation in the Czech Republic additionally reflects a surge in consumer demand following the lifting of anti-epidemic measures. This has led to sharp price increases in the services sector, but growth in goods prices has also accelerated markedly. By raising their prices, sellers of goods and providers of services are making up partly for the zero or low sales they recorded during the shutdowns and for growth in their costs. The 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 supply chain disruptions, accompanied by a significant rise in prices of many commodities and materials. Food price inflation also intensified in September, reflecting growth in prices of fruit, non-alcoholic beverages and also further growth in the price of tobacco. In addition, fuel prices continue to record significant year-on-year growth due to global oil prices and base effects. Although administered price inflation remains relatively subdued for now, stronger growth can also be expected in this price category as prices of electricity and natural gas surge on commodity exchanges.
|September 2021||year-on-year in %|
|MPR Summer 2021||actual value|
|First-round impacts of changes to indirect taxes||0.2||0.2|
|Adjusted for changes to indirect taxes|
|Prices of food, beverages, tobacco||2.1||2.8|
|Monetary policy-relevant inflation||3.1||4.7|
The CNB’s summer forecast expected inflation to rise significantly above the upper boundary of the tolerance band around the 2% inflation target in the second half of this year, due to an upswing in food price inflation coupled with continued high core inflation, strong fuel price inflation and a subsequent contribution of growth in administered prices. According to the summer forecast, the strong overall inflation pressures will start to ease gradually at the end of this year due to slower growth in import prices. Domestic price pressures will continue to rise slightly for some time yet, mainly on the back of increased consumer demand and a gradual pick-up in wage growth, which will be supported by a further marked increase in the minimum wage at the start of next year. Next year, inflation will return towards the 2% target, aided by tighter monetary conditions.
The published data indicate unexpectedly strong and across-the-board inflation pressures from the domestic and foreign economy, which represent a significant inflationary risk to the CNB’s current forecast. The situation is evolving towards a much faster increase in interest rates than assumed in the summer forecast. The CNB has already responded to this risk by raising interest rates by three-quarters of a percentage point at the monetary policy meeting in September and will assess it comprehensively in the forthcoming autumn forecast.
Petr Král, Executive Director, Monetary Department