Agricultural producer prices continue double-digit decline
Economic commentary by Jakub Seidler, Chief Economist of the CBA
Producer prices were mixed again in March, with the double-digit year-on-year decline in agricultural producer prices continuing, but prices rose sharply month-on-month for crop prices above the normal seasonal trend. Industrial producer prices fell month-on-month, but this was mainly due to energy. On the contrary, prices of services were more favourable this month, with month-on-month growth not breaking from the traditional March trend of pre-Christmas years (Chart 1).Today's figures thus bring fewer risks from a monetary policy perspective regarding the development of services prices, on the other hand, the current expectations regarding the further development of CNB rates are mainly influenced by global factors and the market's assumption that the major central banks will eventually cut rates more slowly this year.
Industrial producer prices fell by 0.1% mom in March, while the analysts' consensus expected growth of 0.3%. Year-on-year growth then stagnated from a slight decline in February. However, most of the price development in March was driven by a 1.1% decline in energy prices, while excluding energy prices rose 0.5% m/m and the yoy growth would have moderated the decline from -1.3% to -0.8% yoy. Prices of chemicals or electrical equipment were thus inflationary. Food prices also rose month-on-month for the first time in a year, moderating their yoy decline from -5.9% to -5%. However, the link between the evolution of food prices in the consumer basket and the evolution of food production prices is relatively close and the March development thus presages a slowdown in the decline in food prices so far (Chart 2).
Agricultural producer prices continued their double-digit year-on-year decline in March, but this eased from -19% to -13% compared with February, mainly due to a jump of almost 6% in crop prices. This is a strong month-on-month figure, which is noticeably above the traditional March trend (Graph 3). However, according to the CSO note, it may also have been driven by a change in the weighting structure.
Construction work prices rose marginally month-on-month (0.3%), slightly above the long-term average, but stagnated at 1.6% year-on-year. Construction materials prices were also flat, and were down by less than 2% yoy.
Business services prices rose by 0.7% mom, a figure relatively in line with the normal March trend (Graph 4). This is somewhat reassuring news after February, when services prices rose noticeably above normal seasonality, raising concerns about the persistence of inflation in this price range. On an annual basis, services prices slowed from 4.9% to 4.1%.
The March figures thus provide some reassurance in terms of the future path of services prices, as month-on-month price dynamics have returned to the normal long-term level of the pre-inflationary years after the strong February rise. This is also broadly true for prices of construction work and prices in industrial production (Chart 5), if we compare the March month-on-month development with the March development of 2011-2020. Prices in agriculture were significantly above this development, but it is not necessary to draw strong conclusions from one month, while this development may also be partly driven by technical factors of weight changes.
At present, the outlook for future CNB actions is rather influenced by global factors, in particular the Fed's reassessment of the outlook for this year's rate cuts. The slower decline in inflation and the continued good health of the local economy has led the market to reassess the pace of the rate cut, which has caused interest rates to move upwards and is also affecting market expectations for the CNB, i.e. whether it will be able to cut rates so quickly in an environment where major central banks will be more cautious with monetary easing this year than was anticipated just a few months ago;
