Inflation comes in well above the CNB forecast and visibly above the upper boundary of the tolerance band in August 2021

The CNB comments on the August 2021 inflation figures

According to figures released today, the price level increased by 4.1% year on year in August 2021. Inflation thus increased further, visibly 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 3.9% year on year in August.

The August annual consumer price inflation figure was 1 percentage point higher than the CNB’s current forecast. This deviation was due primarily to higher core inflation and faster food price inflation. The other components of inflation were broadly in line with the forecast. As in previous months, core inflation was the biggest contributor to the fast overall price growth. A surge in consumer demand after the anti-epidemic measures are lifted is expected to cause prices to go up, especially in services. By raising prices, service providers made up partly for the low or zero sales they recorded during the shutdowns and for growth in their operating expenses. For example, price growth in restaurants thus accelerated further in August. Growth in services prices is also being driven significantly by imputed rents (which have a relatively high weight in the Czech CPI) in the context of fast growth in property prices and prices in construction. However, goods price inflation is also accelerating, reflecting strong cost pressures from both the domestic and foreign economy, manifested in accelerating growth in industrial producer prices and prices of materials and commodities. This factor has recently been contributing to faster growth in inflation in other countries, too. Food price inflation also continued to accelerate in August, being most affected by a recovery in growth in prices of dairy and bread products and tobacco. In addition, fuel prices continue to record significant year-on-year growth due to global oil prices.

August 2021 year-on-year in %
MPR Summer 2021 actual value
CPI 3.1 4.1
Administered prices -0.2 0.1
First-round impacts of changes to indirect taxes 0.2 0.2
Adjusted for changes to indirect taxes    
Prices of food, beverages, tobacco 1.6 2.5
Core inflation 3.5 4.8
Fuel prices 20.4 20.5
Monetary policy-relevant inflation 2.9 3.9

According to the CNB summer forecast, inflation will rise significantly above the upper boundary of the tolerance band around the 2% inflation target in the second half of this year. This will be due to an upswing in food price inflation coupled with continued high core inflation and strong fuel price inflation. This will later be joined by renewed administered price inflation. The currently strong overall inflation pressures will start to ease gradually at the end of this year. This will be due partly to a slowdown in the currently rapid 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. The latter 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, supported by a tightening of monetary conditions.

The published figures represent a significant inflationary risk to the CNB’s current forecast, which is tilted to a more pronounced increase in interest rates compared to the outlook so far.

Petr Král, Executive Director, Monetary Department