Inflation accelerated markedly to 2.9 percent in April
Economic commentary by Jakub Seidler, Chief Economist of the CBA
April's annual inflation rose from 2% to 2.9%, well above both the market estimate (+2.4 yoy/ +0.3 mom according to Reuters) and the CNB's estimate of 2.5%. Month-on-month, prices rose 0.7%, half a percentage point above the long-term April average. The main driver of the acceleration in inflation was food and non-alcoholic beverages prices, which rose by 1.7% m-o-m and their anti-inflationary effect from previous months was thus noticeably reduced, also due to the lower comparison base from last year (Chart 1).
Month-on-month inflation growth of 0.7% was driven by 5 items (see Table 1), up from 90% in April: price increases for food, alcoholic beverages, fuels, tobacco and non-alcoholic beverages. Of these, the most significant contribution was made by food alone, which rose strongly month-on-month in April after 5 months of decline. The previously announced risk scenario that retailers would increase prices after Easter has thus come true, while food prices have played an important role in the decline in inflation since the beginning of the year.
In annual terms, the decline in food prices had thus eased from 6.6% to 3.6%, i.e. this factor had increased annual inflation by half a percentage point compared to March. The lower comparison base of last year also played a role. The above-mentioned items, in particular the rise in alcoholic beverages, had an impact on annual inflation.
If we look at the long-term average of April inflation between 2010 and 2020 compared with developments this year, we can see that the inflationary effects were mainly driven by prices of alcoholic beverages and food, which usually fall slightly month-on-month in April (see Chart 2). In the opposite direction were, for example, prices of clothing or recreation.
Prices of services were flat month-on-month, while the long-term average for April was slightly positive, while prices of goods rose more strongly thanks to the above factors (1% in April vs. 0.2% average). In annual terms, prices of goods rose by 1.4% and prices of services by 5.3% (5.4 in March).
April's acceleration in inflation was above expectations due to rising food prices, which had been a potential risk since the start of the year. However, service prices, which remain elevated, were only flat in April itself, bringing a slightly positive message in this regard. The CBA's new macroeconomic forecast assumes average inflation of 2.3% for this year and next, but today's inflation figures push the full-year estimate up a few tenths of a percent, although food prices tend to be volatile and one-month revaluations should be taken with a grain of salt. For the CNB, today's figure is rather unpleasant from a communication point of view, as inflation has moved from the 2% target to the upper boundary of the tolerance band. This will reinforce the Board's need for very cautious monetary easing and brings closer the scenario that the CNB will cut rates only after the traditional Thursday cuts from the next monetary meeting and rates may remain unchanged at some meetings later in the year.
Table 1: Main pro/con inflation factors for month-on-month inflation
Table 2: YoY inflation by items most increasing/decreasing YoY inflation compared to March
