Czech CPI inflation slows slightly in September

Czech Republic’s consumer prices surprisingly slowed in September from August, albeit marginally, according to Czech Statistical Office. Consumer prices dropped 0.2 percent sequentially, mainly due to decline in ‘recreation and culture’ prices. Meanwhile, on a year-on-year basis, consumer prices reached 0.5 percent in the month, 0.1 percentage point lower than in August.

The sequential drop in consumer prices in ‘recreation and culture’ was predominantly due to fall in package holidays by 13 percent. Within furnishings, household equipment and routine household maintenance, prices of cleaning and maintenance products fell by 1.8 percent.

Meanwhile fruit prices dropped 4.8 percent, whereas prices of non-alcoholic beverages dropped by 0.8 percent. Within miscellaneous goods and services, personal care prices fell 0.6 percent. In all, prices of goods rose 0.1 percent, whereas prices of services fell 0.7 percent.

Inflation, in year-on-year basis, rose 0.5 percent, 0.1 percentage points down from August. The slowdown in the price growth was mainly due to lower rise in price of alcoholic beverages and tobacco. According to Czech Statistical Office, in 'food and non-alcoholic beverages', many kinds of food recorded either their deeper price drop in September or moved to the decline from the August growth.

The largest influence on the rise in the year-on-year price level in September came from prices in alcoholic beverages and tobacco, where prices of spirits rose 5.2 percent and that of tobacco products by 5.9 percent. Prices of goods in total dropped 0.1 percent, whereas those of services increased 1.5 percent.

Inflation in the Czech Republic is expected to surpass 1 percent by the end of 2016 that might signify its return to 1 p.p. tolerance band around the Czech National Bank’s target rate, according to KBC Market Research. Therefore, the CNB might be more or less happy with inflation and with the overall development of the economy.

And even if inflation might approach the target a bit later than the CNB expects, it should not have influence on previously announced plan of ending interventions around mid-2017, stated KBC Market Research.

“Rather than domestic inflation developments (stemming mainly from low unemployment, see below), we perceive the possibility of QE extension in the euro zone as the main risk factor that could make the CNB postpone the exit”, added KBC Market Research.