Czechia Watch: November inflation remains below 3%

In a month-on-month comparison, the price level rose by 0.1%, while an increase of 0.2% was predicted. At first glance, the significant increase in egg prices stands out, which rose by more than a fifth (23.3%). Above-average growth was also recorded in the case of cheese and curd prices (+1.3%). Compared to previous months, prices of fuels and oils increased month-on-month (+0.8%). Conversely, prices in the alcoholic beverages and tobacco section fell, particularly those of spirits (-2.1%). In year-on-year comparison, prices in the food and non-alcoholic beverages section rose significantly, transitioning from stagnation in October to a current growth of 4.3%. Just like in the month-on-month case, year-on-year prices of eggs rose significantly, by almost a third (31.7%). The increase in housing prices slowed down, with electricity prices higher by 9.2% and gas prices lower by nearly 3%. The prices of water and sewage continue to rise at a double-digit pace. The price of heat increased by 8.5%, and given the statements from heating companies, further increases can be expected next year. Rent continues to grow by more than 6%. Prices in accommodation services (+8.8%) and in restaurants (+6.7%) continue to rise at an increased pace, as do general service prices by more than 5%. This inflationary hotspot has still not been extinguished. On the other hand, the decline in fuel prices has slowed from double-digit values in September and October to -7.6%, which is in line with our forecast, but it still has a positive impact on inflation. Prices for footwear (-2.3%) and clothing (-0.5%) also decreased.

Consumer inflation in November ended up below the Czech National Bank's estimate, which predicted 2.9% in its macroeconomic forecast at the beginning of November. However, the difference is minimal, which is also reflected in the financial markets, as the koruna weakened by only 0.1% above the level of 25.10 EUR/CZK. This result tends slightly to favour continued rate cuts (by 25 bps), but the option of rate stability is at least equally probable. We expect the banking board to decide to keep rates at the current level next week. We assume that the majority of the banking board will be concerned about the further development of inflation due to still elevated service prices, rising imputed rents (through higher property prices), or a weaker koruna.

Inflation structure

pp contributions to yoy% headline inflation

Source: Macrobond, RBI/Raiffeisen Research

Inflation remained within the tolerance band in the eleventh month of this year. However, we expect inflation to rise above the 3% threshold in December. According to our forecast, the average inflation will settle at 2.4% this year. Next year, we predict a slight increase to 2.5%.