Czech CPI was unexpectedly low in April driven mainly by lower food prices and other seasonal factors. Else, underlying price pressures still appear as broad even though gradual easing is intact. We evaluate risks to our 11.3% forecast as balanced, with no more hikes in sight.
The Czech economy grew by 0.1% qoq in 1Q23 bringing technical recession to a standstill after two consecutive qoq declines in 3Q and 4Q22. As expected, household demand muted real GDP while foreign demand contributed positively.
At the beginning of 1993, the political map expanded and after a peaceful division, Czechoslovakia was replaced by the independent countries of the Czech Republic and Slovakia. Developments over the last 30 years have often diverged and while the Czech Republic has taken a more proactive approach to integration from the start, Slovakia has managed to push integration further by joining the euro area. After 30 years, the two countries maintain a strong relationship and face new - often similar, often quite different - challenges.
Consumer prices grew by 0.6% in February due to the absence of another energy price shock. Still, price pressures remain robust with elevated price growth in services. We have revised our inflation outlook upward and expect now a slower-paced rate-cutting cycle.
Inflation increased by 6.0% compared to December 2022, roughly in line with median market forecast. From a year-on-year perspective, inflation increased from 15.8% to 17.5%. However, when ignoring government measures affecting energy prices, inflation fell from 19.3% to 18.1%.