Risks to the inflation forecast

6th Situation Report 2024

The update of the outlook leads to slightly faster inflation this year and in the first half of next year compared with the summer forecast. At the monetary policy horizon, by contrast, the current inflation outlook is slightly lower. Consistent with the summer forecast was a modest decline in short-term market interest rates. The updated outlook also implies a continued decline in market interest rates. However, the decline is faster in the next few quarters than in the summer forecast, mainly due to a downward revision of the expected path of ECB interest rates.

Observed inflation was slightly above the forecast in Q3. This was due chiefly to higher food prices and, to a lesser extent, administered prices and core inflation. An unexpectedly strong decline in fuel prices had the opposite effect. Consumer price inflation has been revised down slightly from mid-2025 onwards.

Beyond these simulations, the Monetary Department’s economists perceive the following risks and uncertainties. A deepening of the economic problems of Germany, which may stagnate for considerably longer than assumed in the summer forecast, is the dominant downside risk to inflation. Stronger-than-expected growth in property prices is an upside risk, owing to the current recovery in the property market, which is likely to gain momentum. Higher inertia in services prices, which reflect recovering household demand in this area, rapid wage growth and elevated personnel expenses stemming from the consolidation package, is an upside risk to inflation. Possible faster growth in general government expenditure is also an inflationary risk to the forecast. The future monetary policy stance abroad, i.e. the next steps of both the European Central Bank and the US Fed, remains an uncertainty of the forecast. The impacts of the current floods on the Czech Republic’s macroeconomic situation are a new, though probably limited, domestic source of uncertainty.