Inflation slowed to 6.9% in December
Economic commentary by Jakub Seidler, Chief Economist of the CBA
December inflation had fallen from 7.3% to 6.9%, while analysts had expected 7.3% according to the Reuters estimate and the CNB's earlier estimate had been 7% (see Chart 1). Inflation was dragged down above expectations mainly by lower food prices, which fell by 1.5% month-on-month, i.e. significantly above the normal December trend. On a month-on-month basis, prices fell by 0.4% overall, but half of the decline was driven by food prices, with the other half coming from a fall in fuel prices. Inflationary pressures are thus receding, although the lower-than-expected December figures were driven mostly by volatile items that can easily reverse their trend. As in previous months, the low comparison base due to the introduction of the energy-saving tariff is boosting annual price growth; without this effect, annual price growth would have been 4.2%, down from 4.7% in November (Chart 1). For the full year 2023, inflation was 10.7%, and 15.1% in 2022.
This year's inflation is likely to be around 3%, depending on the repricing at the beginning of the year. The main surprise in lower December inflation was due to a stronger fall in food prices, down 1.5% mom, a development noticeably out of line with normal seasonality (Chart 2). Fruit prices, for example, fell by 5.6%, while vegetable prices stagnated, whereas they usually rise by 5-10% in December. The fall in food prices was thus behind half of the 0.4% month-on-month decline in prices. Another strong influence was the strong 4.7% fall in fuel prices, with the average price of petrol at its lowest since January 2022 (see Table 1 for the main categories influencing month-on-month inflation).
Year-on-year inflation remains influenced by the statistical impact of the energy-saving tariff from last year, falling from 7.3% to 6.9%. Electricity prices are thus up a strong 142% year-on-year, but gas prices are down slightly year-on-year (Chart 3). On a month-on-month basis, electricity and gas prices have risen slightly. Excluding the effect of the energy-saving tariff, headline inflation would have been 4.2% in December, down from 4.7% in November. In December 2022, however, it would have been 19.3% rather than 15.8%.
Although December inflation ended below market and CNB expectations, this was largely due to the impact of volatile items such as food and fuel, which could change direction again quickly in the coming months. Thus, from the central bank's perspective, today's weaker inflation number does not represent a fundamental change from previous communication highlighting the need for cautious rate cuts. After all, today's inflation is not that important anymore, what matters will be the January number, which may still surprise. The evolution of seasonally adjusted inflation net of regulatory and administrative effects shows that inflationary pressures are easing, with annualized inflation falling from November's 1.2% to 0.5% (Chart 4) - although much of the decline was driven by the aforementioned volatile items.
However, December's 0.2% mom rise in services prices was already at the normal level that existed before the inflationary surge, with inflation reaching 10.7% for the full year 2023 after 15.1% in 2022. This year's inflation will be largely driven by the January repricing, but the analyst consensus is around 3% (Chart 5).
This year's inflation is likely to be around 3%, depending on the repricing at the beginning of the year. The main surprise in lower December inflation was due to a stronger fall in food prices, down 1.5% mom, a development noticeably out of line with normal seasonality (Chart 2). Fruit prices, for example, fell by 5.6%, while vegetable prices stagnated, whereas they usually rise by 5-10% in December. The fall in food prices was thus behind half of the 0.4% month-on-month decline in prices. Another strong influence was the strong 4.7% fall in fuel prices, with the average price of petrol at its lowest since January 2022 (see Table 1 for the main categories influencing month-on-month inflation).
Year-on-year inflation remains influenced by the statistical impact of the energy-saving tariff from last year, falling from 7.3% to 6.9%. Electricity prices are thus up a strong 142% year-on-year, but gas prices are down slightly year-on-year (Chart 3). On a month-on-month basis, electricity and gas prices have risen slightly. Excluding the effect of the energy-saving tariff, headline inflation would have been 4.2% in December, down from 4.7% in November. In December 2022, however, it would have been 19.3% rather than 15.8%.
Although December inflation ended below market and CNB expectations, this was largely due to the impact of volatile items such as food and fuel, which could change direction again quickly in the coming months. Thus, from the central bank's perspective, today's weaker inflation number does not represent a fundamental change from previous communication highlighting the need for cautious rate cuts. After all, today's inflation is not that important anymore, what matters will be the January number, which may still surprise. The evolution of seasonally adjusted inflation net of regulatory and administrative effects shows that inflationary pressures are easing, with annualized inflation falling from November's 1.2% to 0.5% (Chart 4) - although much of the decline was driven by the aforementioned volatile items.
However, December's 0.2% mom rise in services prices was already at the normal level that existed before the inflationary surge, with inflation reaching 10.7% for the full year 2023 after 15.1% in 2022. This year's inflation will be largely driven by the January repricing, but the analyst consensus is around 3% (Chart 5).
Inflation (% yoy, mom)
Source: CZSO, CBA
Foodstuffs - traditional seasonality (month-on-month change in %)
Source: CZSO, CBA
Electricity and gas prices (% yoy)
Source: CZSO, CBA
Table 1: Month-on-month inflation
Source: CZSO, CBA
Table 2: Year-on-year inflation by item most
increasing/decreasing YoY inflation
Source: CZSO, CBA
Inflation excluding administered and administered prices
(% yoy annualized from mom inflation, seasonally adjusted)
(% yoy annualized from mom inflation, seasonally adjusted)
Source: CZSO, CBA
Inflation in the Czech Republic (in %)
Source: CZSO, CBA, Focus Economics 2024f
Disclaimer: Text translated automatically, excuse any imperfections.