Czech inflation slows down further in October

Inflation in the Czech Republic slowed down from 2.9% in October to 2.7% in November, which was slightly below the market estimate of 2.8% and the central bank's slightly older estimate of 2.9%. The slowdown was mainly due to volatile food prices, which declined slightly compared to October, and their year-on-year growth slowed to 1.9% from 3.2% in October. In other categories of the consumer basket, the dynamics of prices in November was diverse, with both slightly positive and negative changes in the year-on-year CPI dynamics.

Despite the gradual slowdown in food price annual growth, which peaked in April by almost 8%, food prices have increased by an average of 5% in 2020. Together with housing and alcoholic beverages and tobacco, these are the main factors accelerating inflation this year.

While inflation has been surprising the market on the upside after the peak of the pandemic, the situation has changed since September and price growth has been slowing down slightly - more than the market expected. However, the main surprise was usually volatile food prices, which was also the case in November. Food prices even accelerated slightly further in November, with year-on-year growth reaching 2.8% after 2.7% in October.

Despite slightly slowing inflation in recent months, headline inflation is still expected to exceed 3% this year - the highest since 2012. However, it should slow further next year due to this year's high base effect and other effects of the coronary crisis on demand.

However, despite the persisting uncertainty, the prospects for next year have been reassessed to a more optimistic direction in the last few weeks thanks to the vaccine. At the same time, the Senate approved the tax-bill with limited changes, which will lead to a fall in government revenues of around CZK 100 bn next year.