The CNB comments on the June 2014 inflation figures
Inflation comes in below the CNB forecast in June
According to figures released today, the price level remained unchanged year on year in June 2014. Consumer price inflation adjusted for the first-round effects of changes to indirect taxes fell slightly year on year in June. Inflation was thus still well below the lower boundary of the tolerance band around the CNB’s target.
Annual headline inflation was 0.5 percentage point lower in June 2014 than forecasted by the CNB. This deviation was due to a year-on-year decline in food prices caused mainly by a sharp year-on-year fall in potato prices on the domestic market and slower price growth for many other food commodities. By contrast, in its forecast (drawn up in April), the CNB had expected food prices to continue to show modest annual growth in line with the increase in global prices of food commodities observed in the spring months of 2014. On the other hand, adjusted inflation excluding fuels was noticeably higher than forecasted. In recent months, its growth has been reflecting the weakening of the koruna at the end of last year as well as the subsiding anti-inflationary effect of the domestic economy and the labour market observed so far this year. Fuel prices also rose rather faster in year-on-year terms than expected by the CNB. The effects of indirect taxes in June were in line with the CNB forecast, and the same was largely true of administered prices.
In its statement following its most recent meeting two weeks ago, the CNB Bank Board pointed to a probable deviation of inflation in June from the forecast. It stated that the deviation from the forecast would probably be due to significantly more subdued inflation abroad coupled with mostly non-fundamental factors leading to lower-than-forecasted food prices. According to the CNB Board, near-zero annual inflation can be expected in the summer months of this year, with slightly negative figures even being possible. In this light, the June data thus cannot be considered a surprise, but merely confirm the previously perceived anti-inflationary risks to the CNB forecast.
The published data also continue to confirm the CNB’s opinion that the decision made in November to start using the exchange rate as an additional monetary policy instrument contributed significantly to averting the threat of deflation due to insufficient demand and the economic downturn. The weakened exchange rate has so far been feeding through to inflation mainly through higher import prices, but it has also contributed to faster growth in the domestic economy and a positive reversal on the labour market. Their previous long-term anti-inflationary effect has thus been fading quickly recently in line with the CNB forecast, and economic activity and wages will gradually start to have an inflationary effect in line with the CNB’s expectations. These factors are currently visible in adjusted inflation excluding fuels, which is gradually picking up further following its return to positive figures and will help inflation to return close to the CNB’s 2% target in 2015.
Tomáš Holub, Executive Director, Monetary and Statistics Department
The CNB comments on the June 2014 inflation figures
Inflation comes in below the CNB forecast in June
According to figures released today, the price level remained unchanged year on year in June 2014. Consumer price inflation adjusted for the first-round effects of changes to indirect taxes fell slightly year on year in June. Inflation was thus still well below the lower boundary of the tolerance band around the CNB’s target.
Annual headline inflation was 0.5 percentage point lower in June 2014 than forecasted by the CNB. This deviation was due to a year-on-year decline in food prices caused mainly by a sharp year-on-year fall in potato prices on the domestic market and slower price growth for many other food commodities. By contrast, in its forecast (drawn up in April), the CNB had expected food prices to continue to show modest annual growth in line with the increase in global prices of food commodities observed in the spring months of 2014. On the other hand, adjusted inflation excluding fuels was noticeably higher than forecasted. In recent months, its growth has been reflecting the weakening of the koruna at the end of last year as well as the subsiding anti-inflationary effect of the domestic economy and the labour market observed so far this year. Fuel prices also rose rather faster in year-on-year terms than expected by the CNB. The effects of indirect taxes in June were in line with the CNB forecast, and the same was largely true of administered prices.
In its statement following its most recent meeting two weeks ago, the CNB Bank Board pointed to a probable deviation of inflation in June from the forecast. It stated that the deviation from the forecast would probably be due to significantly more subdued inflation abroad coupled with mostly non-fundamental factors leading to lower-than-forecasted food prices. According to the CNB Board, near-zero annual inflation can be expected in the summer months of this year, with slightly negative figures even being possible. In this light, the June data thus cannot be considered a surprise, but merely confirm the previously perceived anti-inflationary risks to the CNB forecast.
The published data also continue to confirm the CNB’s opinion that the decision made in November to start using the exchange rate as an additional monetary policy instrument contributed significantly to averting the threat of deflation due to insufficient demand and the economic downturn. The weakened exchange rate has so far been feeding through to inflation mainly through higher import prices, but it has also contributed to faster growth in the domestic economy and a positive reversal on the labour market. Their previous long-term anti-inflationary effect has thus been fading quickly recently in line with the CNB forecast, and economic activity and wages will gradually start to have an inflationary effect in line with the CNB’s expectations. These factors are currently visible in adjusted inflation excluding fuels, which is gradually picking up further following its return to positive figures and will help inflation to return close to the CNB’s 2% target in 2015.
Tomáš Holub, Executive Director, Monetary and Statistics Department