The CNB comments on the January 2008 inflation figures
Inflation in January was higher than CNB expected
According to figures released today, annual inflation jumped to 7.5% in January 2008, from 5.4% in December last year. This means that it was significantly above the upper boundary of the tolerance band set by the CNB around its target of 3%. This was chiefly due to changes to indirect taxes, whose first-round effect was more than 2 percentage points. However, inflation adjusted for the first-round effects of changes to indirect taxes – referred to as monetary-policy relevant inflation – rose further as well, to around 5.3% in January, and was thus also noticeably above the upper boundary of the inflation-target tolerance band.
In month-on-month terms, the price level increased by 3% in January 2008. This increase was mostly due to administrative measures – a VAT rate increase, the introduction of fees for health care and a rise in regulated rents and other regulated prices in the housing area. The increase in the lower VAT rate was mainly reflected in prices of food, transport, hotels and restaurants and other market services. However, prices of some foods, which grew markedly at the end of the year (butter, bread), recorded a fall despite the VAT rate increase.
Annual inflation in January 2008 was 0.8 percentage point higher than the CNB’s current forecast (6.7%). The biggest deviation was recorded by adjusted inflation excluding fuels, mainly due to rising prices of services. The unexpectedly sharp rise in adjusted inflation occurred despite a marked appreciation of the koruna’s exchange rate, which suggests upward pressures on prices from the Czech economy. Food price inflation was also higher than forecasted, probably due to the effects of the tax changes being stronger than assumed in the forecast. Regulated price inflation was also rather higher in January. Fuel prices and the first-round effects of the changes to indirect taxes in January were broadly in line with the CNB’s forecast.
The current extraordinarily high inflation can be viewed as a temporary swing caused by tax changes, rising regulated prices (including the introduction of regulatory fees for health care) and extraordinarily high food price growth at the end of last year. Once this swing has subsided, inflation should return to low levels at the end of 2008 and the start of 2009, in line with the CNB’s target.
Tomáš Holub, Executive Director, Monetary and Statistics Department
The CNB comments on the January 2008 inflation figures
Inflation in January was higher than CNB expected
According to figures released today, annual inflation jumped to 7.5% in January 2008, from 5.4% in December last year. This means that it was significantly above the upper boundary of the tolerance band set by the CNB around its target of 3%. This was chiefly due to changes to indirect taxes, whose first-round effect was more than 2 percentage points. However, inflation adjusted for the first-round effects of changes to indirect taxes – referred to as monetary-policy relevant inflation – rose further as well, to around 5.3% in January, and was thus also noticeably above the upper boundary of the inflation-target tolerance band.
In month-on-month terms, the price level increased by 3% in January 2008. This increase was mostly due to administrative measures – a VAT rate increase, the introduction of fees for health care and a rise in regulated rents and other regulated prices in the housing area. The increase in the lower VAT rate was mainly reflected in prices of food, transport, hotels and restaurants and other market services. However, prices of some foods, which grew markedly at the end of the year (butter, bread), recorded a fall despite the VAT rate increase.
Annual inflation in January 2008 was 0.8 percentage point higher than the CNB’s current forecast (6.7%). The biggest deviation was recorded by adjusted inflation excluding fuels, mainly due to rising prices of services. The unexpectedly sharp rise in adjusted inflation occurred despite a marked appreciation of the koruna’s exchange rate, which suggests upward pressures on prices from the Czech economy. Food price inflation was also higher than forecasted, probably due to the effects of the tax changes being stronger than assumed in the forecast. Regulated price inflation was also rather higher in January. Fuel prices and the first-round effects of the changes to indirect taxes in January were broadly in line with the CNB’s forecast.
The current extraordinarily high inflation can be viewed as a temporary swing caused by tax changes, rising regulated prices (including the introduction of regulatory fees for health care) and extraordinarily high food price growth at the end of last year. Once this swing has subsided, inflation should return to low levels at the end of 2008 and the start of 2009, in line with the CNB’s target.
Tomáš Holub, Executive Director, Monetary and Statistics Department