Czech inflation at 2.1% in December 2018, third highest rate in a decade

Czech inflation at 2.1% in December 2018, third highest rate in a decade
Czech inflation at 2.1% in December 2018, third highest rate in a decade
By bne IntelliNews January 11, 2019

Czech inflation slowed to 2.1% in December 2018 from 2.5% year-on-year, the third highest average inflation rate in past 10 years. Consumer prices in December went up by 0.1% compared to November, due to increase in price of food and non-alcoholic beverages, the Czech Statistical Office (CSU) reported on January 10.

The y/y increase of consumer prices amounted to 2.0% in December, the same figure as in November 2018.

The month-on-month growth in consumer prices in food and non-alcoholic beverages came primarily from higher prices of vegetables by 11.9%. Prices of natural gas and actual rentals for housing due to higher rents rose by 0.3% and 0.2%, respectively. Decrease in total consumer price level in December was due lower prices in transport as result of drop of prices of fuels and lubricants for personal transport equipment by 3.6% m/m. In alcoholic beverages and tobacco, prices of spirits decreased by 2.9% and prices of wine by 2.0%.

“Inflationary pressures will continue to grow further this year due to a tight labour market and solid wage growth. It should be accompanied by a rise in energy prices, especially electricity and gas for households, and food prices as a result of the poor harvest last year. The combination of these factors should lead to a gradual acceleration of inflation to 2.5% at the turn of the first and second quarters, followed by a gradual return to 2%,” said ING Chief Economist Jakub Seidler.

"At the beginning of the year, consumer prices would rise sharply to 2.5%. Raise in prices will drive wage growth and a rise in energy prices. On average, consumer prices would rise by 2.6% this year,” said Raiffeisenbank analyst Frantisek Taborsky.

More expensive energy, according to the Chief Economist Czech Fund Lukas Kovanda, will particularly influence inflation in 1Q19. Deloitte Chief Economist David Marek pointed out that food prices will be key factor of inflation this year. “Last year's low harvest of basic crops will be gradually projected in food prices” he added.

“For the whole year, average inflation might reach the same level as in 2018. Without the recent fall in oil prices, inflation prospects for this year would be significantly higher, around 2.6%. From the point of view of the Czech National Bank (CNB), however, it is essential that this year's core inflation continues to accelerate as this measure is more important for the setting of monetary policy,” Seidler noted, adding that due to the prospects for core inflation increase, a further growth in rates at the CNB’s February monetary policy meeting are seen as very likely. Although the CNB's new forecast will revise Czech GDP growth and inflation slightly downwards.