Inflation slowed to 2.8 percent in January
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
The structure of core inflation continued to trend more favourably in January, but not sufficiently to moderate inflation to 2% as early as 2025. Consumer price inflation of 1.3% m/m and 2.8% y/y did not provide a major surprise relative to the previously published preliminary estimate. Inflation remains closer to the upper boundary of the CNB's tolerance band, mainly due to higher food and alcohol prices and growth in the regulated part of energy prices. Core inflation accelerated slightly to 2.5% year-on-year. However, its month-on-month momentum, including services price growth, remains supportive of a further slowdown in CPI growth during 2025. However, a tighter housing market, a rather moderate cooling of the labour market and higher food prices are likely to keep CPI growth closer to 2.5% y/y this year than a slowdown in CPI growth towards the CNB's 2% inflation target.
This view, and the outlook for core inflation to rise around 2.3% y/y for the rest of the year, is likely to keep the CBR in a more hawkish frame of mind with another possible cut in the CBR interest rate to 3.5% in May this year after the February cut to 3.75%. The March rate cut could remain in play in the event of a more pronounced across-the-board slowdown in February's month-on-month core inflation accompanied by softer wage growth in Q4 2024.
A closer look at January consumer prices did not yield any significant surprises relative to the estimate
The CSO confirmed its preliminary estimate of 1.3% month-on-month consumer price growth in January. This was largely driven by higher-than-usual increases in food and alcohol prices, as well as rents, plus a seasonal increase in holiday prices. The increase in regulated items for energy was muted by the decline in its commodity prices, and energy prices overall fell only slightly m/m in January (-0.4%).
Core inflation accelerated year-on-year, but month-on-month dynamics remain favourable
Figures from the CNB confirmed my preliminary estimate of a slight rise in core inflation to 2.5% yoy from 2.3% in December. This mainly reflects the base effect, as I estimate that seasonally adjusted core inflation growth eased back below 0.2% m-o-m. Thus, core inflation is holding its year-on-year growth below the 2.8% rise in headline consumer prices.
And it also looks like slower growth in core services
Moreover, prices in the non-tradable core segment slowed (albeit slightly) to 4.2% y/y. However, if we exclude imputed rent, which accelerated its y/y growth to 2.9% from 1.7% in December thanks to the base effect, core services prices (non-tradable excluding imputed rent) slowed to 4.8% y/y from 5.5% in December. Prices in the core tradable segment maintained their growth at around 0.2% yoy. The slowdown in price growth for core services is not only evident on a year-on-year basis, but on a month-on-month basis. But for a more robust picture, we need to see February data as well due to less stable price growth momentum, especially for imputed rentals.
