Inflation comes in well above the CNB forecast and well above the upper boundary of the tolerance band in November 2021
The CNB comments on the November 2021 inflation figures
According to figures released today, the price level increased by 6% year on year in November 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 a full 7% year on year in November.
Consumer price inflation in November was around 1 percentage point higher than expected by the CNB’s autumn forecast. As in October, the deviation of observed inflation from the forecast was due mainly to accelerating core inflation. Within core inflation, the contribution of imputed rent is gaining further in strength. Imputed rent expresses the cost of owner-occupied housing, which has a relatively high weight in the domestic consumer price index and reflects long-running rapid growth in property prices and prices in construction. Owing to a temporary waiver of VAT on electricity and natural gas, administered prices declined overall in November, though somewhat less than forecasted. This deviation reflected the extraordinary but temporary price effect of forced migration of some households to electricity and gas suppliers of last resort, which was observed already in October and which the CNB’s autumn forecast had not expected the CZSO to capture in inflation. Growth in fuel prices was somewhat faster than forecasted. By contrast, and as in October, food price inflation was slightly lower than forecasted.
November 2021
year-on-year in %
MPR Autumn 2021
actual value
CPI
4.9
6.0
Administered prices
-4.8
-3.0
First-round impacts of changes to indirect taxes
-0.9
-1.0
Adjusted for changes to indirect taxes
Prices of food, beverages, tobacco
4.1
3.2
Core inflation
6.2
7.8
Fuel prices
30.2
34.5
Monetary policy-relevant inflation
5.8
7.0
The published data confirm the existence of strong and across-the-board inflation pressures from the domestic and foreign economies, which justify the interest rate increases made by the CNB so far. Prices of services and most goods are rising sharply. The risk mentioned in the autumn Monetary Policy Report that we may witness faster growth in the cost of owner-occupied housing is meanwhile materialising. As in other countries, the increase in core inflation in the Czech Republic reflects a surge in consumer demand. Moreover, we are in an environment of strong growth in costs, which – together with making up for the loss of income they recorded during the shutdowns – retailers and service providers are passing through to prices. The current 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 persisting shortfalls in global production and supply chains, accompanied by a significant rise in prices of energy, commodities and materials.
The observed developments are an inflationary risk to the autumn forecast. The forecast expects inflation to rise significantly at the end of this year and approach 7% during the winter, with all its components contributing to the increase. The faster price growth will be driven by a further increase in core inflation, reflecting significant domestic price pressures and strong producer price inflation at home and abroad. This will be accompanied by rising food prices on the back of growth in agricultural commodity prices on world markets. Fuel price inflation will also remain high. Administered prices will rise significantly at the start of next year owing to growth in prices of electricity and natural gas for households. The strengthening domestic inflation pressures will reflect faster wage growth in the next few quarters. However, the overall inflation pressures will start to ease in the course of next year, especially as growth in import prices fades. This will be supported by an appreciating koruna. Inflation will gradually fall in the course of next year, aided by a prior significant increase in interest rates, and will decline close to the Czech National Bank’s 2% target over the monetary policy horizon, i.e. in late 2022 and early 2023.
Petr Král, Executive Director, Monetary Department
Inflation comes in well above the CNB forecast and well above the upper boundary of the tolerance band in November 2021
The CNB comments on the November 2021 inflation figures
According to figures released today, the price level increased by 6% year on year in November 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 a full 7% year on year in November.
Consumer price inflation in November was around 1 percentage point higher than expected by the CNB’s autumn forecast. As in October, the deviation of observed inflation from the forecast was due mainly to accelerating core inflation. Within core inflation, the contribution of imputed rent is gaining further in strength. Imputed rent expresses the cost of owner-occupied housing, which has a relatively high weight in the domestic consumer price index and reflects long-running rapid growth in property prices and prices in construction. Owing to a temporary waiver of VAT on electricity and natural gas, administered prices declined overall in November, though somewhat less than forecasted. This deviation reflected the extraordinary but temporary price effect of forced migration of some households to electricity and gas suppliers of last resort, which was observed already in October and which the CNB’s autumn forecast had not expected the CZSO to capture in inflation. Growth in fuel prices was somewhat faster than forecasted. By contrast, and as in October, food price inflation was slightly lower than forecasted.
The published data confirm the existence of strong and across-the-board inflation pressures from the domestic and foreign economies, which justify the interest rate increases made by the CNB so far. Prices of services and most goods are rising sharply. The risk mentioned in the autumn Monetary Policy Report that we may witness faster growth in the cost of owner-occupied housing is meanwhile materialising. As in other countries, the increase in core inflation in the Czech Republic reflects a surge in consumer demand. Moreover, we are in an environment of strong growth in costs, which – together with making up for the loss of income they recorded during the shutdowns – retailers and service providers are passing through to prices. The current 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 persisting shortfalls in global production and supply chains, accompanied by a significant rise in prices of energy, commodities and materials.
The observed developments are an inflationary risk to the autumn forecast. The forecast expects inflation to rise significantly at the end of this year and approach 7% during the winter, with all its components contributing to the increase. The faster price growth will be driven by a further increase in core inflation, reflecting significant domestic price pressures and strong producer price inflation at home and abroad. This will be accompanied by rising food prices on the back of growth in agricultural commodity prices on world markets. Fuel price inflation will also remain high. Administered prices will rise significantly at the start of next year owing to growth in prices of electricity and natural gas for households. The strengthening domestic inflation pressures will reflect faster wage growth in the next few quarters. However, the overall inflation pressures will start to ease in the course of next year, especially as growth in import prices fades. This will be supported by an appreciating koruna. Inflation will gradually fall in the course of next year, aided by a prior significant increase in interest rates, and will decline close to the Czech National Bank’s 2% target over the monetary policy horizon, i.e. in late 2022 and early 2023.
Petr Král, Executive Director, Monetary Department