Czech headline inflation likely to decelerate to 2.5 pct by end-2017

The year-on-year consumer price inflation in the Czech Republic accelerated to its highest level for the last five years as it reached 2.9 percent in October. Increasing food prices are mainly the reason for elevated inflation. The rising cost of housing is the second main factor pushing up inflation. The boom in real estate is not just seen in the record growth of the prices of new and old flats but also market rents are rising over time.

More expensive electricity, which is still awaiting more rapid growth, is gradually being added to this. The period of reasonable fuel has also ended. Therefore, the last three months have seen inflation coming from fuel too.

According to the KBC Research Report, the headline inflation is peaking and will gradually decline over the next few months. The consumer price inflation is expected to fall to 2.5 percent by the end of this year and still come above the central bank’s target.

“It seems that another rate hike is not far away, however, whether it will be in December, will depend on the strength of the koruna and, above all, the first estimate of GDP growth (released next week) and wages for the third quarter”, added KBC Market Research.

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