Czech inflation stagnates at 2.5%

The Czech National Bank confirmed August inflation was slightly below its estimate due to lower food prices. This declined by almost 1% month on month in August, but its year on year dynamics remained above the 5% border. Though food prices are the main contributor to the 1 percentage point YoY price growth, we see more broad-based inflationary pressures. Indeed, prices of services accelerated further to 3.2% YoY in August after 3.1% in June and also core inflation reached 2.7% YoY after 2.6% in the previous month.

These inflationary measures demonstrate that demand-driven inflationary pressures are gradually rising in the Czech economy. This is due to the favourable economic activity and the increasing consumption of households driven by the historically low unemployment rate and rising wages.

Yesterday’s approval of state-employees wage increase starting in November 2017 will be another impulse for next year’s wage growth, which might get to 8% YoY according to our preliminary estimates.

For the whole of 2017, average inflation should reach 2.4%, and a similar print might be expected for next year vs. 0.7% on average in 2016.