Czech inflation peaks in February

Czech CPI accelerated slightly to 3.7% in February after 3.6% in January. The year-on-year acceleration was driven mainly by clothing and footwear, which accelerated by 4.3% YoY and mostly contributed to the growth. Alcoholic price beverages didn't grow as much as we'd expected, in fact, they decelerated in MoM terms.

In month-on-month terms, prices grew by 0.3% after 1.5% in January, and February price growth was driven mainly by holiday packages, which is traditional seasonal development. Coronavirus fears started to mount in the last week of February, so this is not reflected in prices just yet.

Food prices stagnated while fuel prices fell by 1.5%. Prices of services accelerated from 3.9 to 4.1% YoY.

The central bank expected February CPI around 3.5%, but that estimate was calculated before the January numbers were released. But given the recent volatility in oil prices, today's inflation numbers don't mean very much anymore.

If oil prices remain below 40 USD/b in the coming quarters, total CPI would decelerate about 0.5ppt this year, so instead of coming in around 3.1%, it is likely to come in around 2.6-2.7%.

We think overall inflation will remain above the 2% target for the whole year, so the central bank shouldn't really be worried about the oil slump (which is usually neglected as a supply shock), even the secondary-round effects, which might affect core inflation via prices of transport and other services linked to lower oil prices.