Inflation in line with the CNB’s forecast and just below the upper boundary of the tolerance band in May 2021

The CNB comments on the May 2021 inflation figures

According to figures released today, the price level increased by 2.9% year on year in May 2021. Inflation was thus lower than in April, just below the upper boundary of the tolerance band around the CNB’s target. Consumer price inflation adjusted for the first-round effects of changes to indirect taxes reached 2.6% year on year in May.

The May annual consumer price inflation figure was in line with the CNB’s current forecast. Core inflation rose slightly faster than forecasted. A somewhat stronger increase in fuel prices acted in the same direction, linked with higher-than-expected oil prices. This deviation was offset by lower-than-forecasted food price inflation, which has been highly volatile in recent months. The first-round effects of the increase in excise duty on cigarettes were slightly lower than predicted. In line with the forecast, administered prices were flat year on year.

The published data bear out the message of the CNB’s current forecast. According to the forecast, annual consumer price inflation will temporarily accelerate towards the upper boundary of the tolerance band. This will be due to a sharp year-on-year increase in fuel prices, later supported also by buoyant growth in food prices, and also renewed growth in administered prices at the end of the year. Core inflation will fall only gradually from the current elevated levels. Its decline will be slowed by significant domestic demand pressures and brisk growth in industrial prices abroad. The overall inflation pressures will start to ease in the autumn as the current elevated growth of import prices subsides. Conversely, domestic price pressures will rise slightly owing to the current reopening of the domestic economy and a gradual pick-up in wage growth. Inflation will return close to the CNB’s 2% target next year, aided by a gradual tightening of the monetary conditions from roughly the middle of this year onwards.

Luboš Komárek, Deputy Executive Director, Monetary Department