William Malcolm

Czech Inflation Slows In June

Year-on-year growth in consumer prices slowed for the second time in a row in June. Prices rose by 2.8 percent, while in May by 2.9 percent, according to the Czech Statistical Office (CSO). Automotive and fuels had the greatest influence on rising prices. June year-on-year inflation was one tenth of a point higher than estimated by the Czech National Bank (CNB) in the forecast. Analysts expect that even in the rest of the year, year-on-year inflation will be above the CNB’s 2% target and may attack the 3% threshold.

According to statisticians, cars, the price of which affected the development of June inflation, were 5.7 percent more expensive year-on-year in the sixth month. People paid about a fifth more for fuel than a year ago. For example, Natural 95 petrol reached CZK 32.47 / l, which was the highest since July 2019. Deloitte analyst David Marek stated that a key factor in June inflation was the increase in the price of holidays offered by travel agencies by 4.3 percent. The prices of clothing and footwear, which rose by 1.4 percent in June, also had a seasonal character.

In addition, people paid extra for alcohol and tobacco, water and sewerage, or financial services year on year. On the contrary, food, soft drinks, electricity or gas became cheaper.

June inflation ended just above the CNB’s estimate, and the central bankers’ determination to further raise interest rates does not change, said Raiffeisenbank analyst David Vagenknecht. The next opportunity is the meeting of the Bank Board on August 5. According to him, the growth of CNB interest rates is inevitable and will continue in the second half of the year and probably also in 2022.

The director of the CNB’s monetary section, Petr Král, stated that core inflation was higher than expected by the central bank, which was affected by the acceleration in the dynamics of prices of goods and services. According to him, the rise in fuel prices, which surpassed the forecast in connection with the unexpectedly high price of oil, also had the same effect. According to the King, overall inflationary pressures will begin to ease in the autumn as the accelerated rise in import prices fades. In contrast, domestic price pressures will increase slightly in connection with the reopening of the domestic economy and the gradual acceleration of wage growth. Next year, inflation will return to close to the CNB’s 2% target, also due to the fact that monetary policy interest rates have started to rise since June this year, the King added.

According to UniCredit Bank analyst Patrik Rožumberský, inflation will rise to three percent in July. “The expected growth will probably be driven by more expensive food and higher housing costs. The level of three percent will be the center of a relatively narrow range for inflation in the rest of this year,” the analyst told ČTK. He added that the increasing risk for even faster price growth in the next period are emission allowances, which are now rising sharply, and the associated threat of a significant increase in electricity prices.

Patria Finance analyst Jan Bureš thinks that the year-on-year dynamics of inflation in transport will slow down during the summer, which will also reduce headline inflation, which will nevertheless remain above the CNB’s 2% target. At the end of the year, however, he could climb to three percent again due to higher regulated prices, more expensive energy and food.