A further sizeable decrease in inflation in September 2023 exceeds the forecast
The CNB comments on the September 2023 inflation figures
According to figures released today, the price level increased by 6.9% year on year in September 2023. Inflation thus slowed significantly further, but remained well above the upper boundary of the tolerance band around the CNB’s target. Consumer prices adjusted for the first-round effects of changes to indirect taxes (monetary policy-relevant inflation) rose by 6.7% year on year in September.
Annual inflation was 0.3 percentage point lower in September than the CNB’s summer forecast. This was due mainly to a stronger-than-expected slowdown in food price inflation, lower core inflation and to a lesser extent weaker administered price inflation. By contrast, the year-on-year decline in fuel prices was in fact less pronounced than forecasted.
September 2023
year-on-year in %
MPR Summer 2023
actual value
CPI
7.2
6.9
Administered prices
15.6
15.3
First-round impacts of changes to indirect taxes
0.2
0.2
Adjusted for changes to indirect taxes
Prices of food, beverages, tobacco
7.3
6.0
Core inflation
5.5
5.0
Fuel prices
-15.3
-6.6
Monetary policy-relevant inflation
7.0
6.7
Core inflation slowed further in September. It has been falling gradually since October 2022, reflecting a fading of growth in prices of foreign inputs and a cooling of domestic demand. The latter is acting against a further increase in the profit margins of producers, retailers and service providers. Growth in goods prices slowed in particular, while growth in services prices moderated to a lesser extent. The decline in services price inflation was due to most categories together with a continued decrease in the contribution of imputed rent. The latter reflects slower growth in construction work prices and a correction of new residential property prices due to higher interest rates.
Annual food price inflation fell significantly further in September. This was due to declining global agricultural commodity prices and domestic agricultural producer prices, as well as subdued consumer demand. Annual growth in administered prices remains strong but fell visibly in September due to base effects as well as decreasing electricity and gas prices in advance of the start of this year’s heating season. Despite a month-on-month increase, fuel prices declined year on year in September, still reflecting last year’s high comparison base due to Russia’s invasion of Ukraine.
The observed price developments bear out the expectations of the summer forecast that inflation would continue to fall sharply during summer and early autumn.
The downward trend in annual inflation will temporarily halt in October, despite the fact that the price level in October will virtually remain at about the same level as in September. This will be due to a temporary technical factor, i.e. a lower comparison base last year. A sharp decline in prices of electricity for households was recorded in October 2022 owing to the statistical pass-through of the energy savings tariff and the waiver of the renewable sources fee. This effect led to a sharp decrease in electricity prices and, as a result, headline inflation. The price level this October will be compared to this statistically decreased level. Therefore, annual inflation will very likely pick up in October by more than a percentage point compared to September. However, this statistical effect will in no way disrupt the process of returning to price stability in the Czech Republic. The strength and broad nature of the disinflationary trend is illustrated by low month-on-month price growth in recent months. This is evident mainly (but not solely) in the key segment of consumer prices – the price core, where price growth is now at low single-digit levels in annual terms.
Therefore – unless something unpredictable happens – inflation will decline sharply close to the upper boundary of the tolerance band around the CNB’s 2% target at the start of next year, following the unwinding of the above-mentioned statistical effect that will cause annual consumer price inflation to fluctuate at the close of this year.
Petr Král, Executive Director, Monetary Department
A further sizeable decrease in inflation in September 2023 exceeds the forecast
The CNB comments on the September 2023 inflation figures
According to figures released today, the price level increased by 6.9% year on year in September 2023. Inflation thus slowed significantly further, but remained well above the upper boundary of the tolerance band around the CNB’s target. Consumer prices adjusted for the first-round effects of changes to indirect taxes (monetary policy-relevant inflation) rose by 6.7% year on year in September.
Annual inflation was 0.3 percentage point lower in September than the CNB’s summer forecast. This was due mainly to a stronger-than-expected slowdown in food price inflation, lower core inflation and to a lesser extent weaker administered price inflation. By contrast, the year-on-year decline in fuel prices was in fact less pronounced than forecasted.
Core inflation slowed further in September. It has been falling gradually since October 2022, reflecting a fading of growth in prices of foreign inputs and a cooling of domestic demand. The latter is acting against a further increase in the profit margins of producers, retailers and service providers. Growth in goods prices slowed in particular, while growth in services prices moderated to a lesser extent. The decline in services price inflation was due to most categories together with a continued decrease in the contribution of imputed rent. The latter reflects slower growth in construction work prices and a correction of new residential property prices due to higher interest rates.
Annual food price inflation fell significantly further in September. This was due to declining global agricultural commodity prices and domestic agricultural producer prices, as well as subdued consumer demand. Annual growth in administered prices remains strong but fell visibly in September due to base effects as well as decreasing electricity and gas prices in advance of the start of this year’s heating season. Despite a month-on-month increase, fuel prices declined year on year in September, still reflecting last year’s high comparison base due to Russia’s invasion of Ukraine.
The observed price developments bear out the expectations of the summer forecast that inflation would continue to fall sharply during summer and early autumn.
The downward trend in annual inflation will temporarily halt in October, despite the fact that the price level in October will virtually remain at about the same level as in September. This will be due to a temporary technical factor, i.e. a lower comparison base last year. A sharp decline in prices of electricity for households was recorded in October 2022 owing to the statistical pass-through of the energy savings tariff and the waiver of the renewable sources fee. This effect led to a sharp decrease in electricity prices and, as a result, headline inflation. The price level this October will be compared to this statistically decreased level. Therefore, annual inflation will very likely pick up in October by more than a percentage point compared to September. However, this statistical effect will in no way disrupt the process of returning to price stability in the Czech Republic. The strength and broad nature of the disinflationary trend is illustrated by low month-on-month price growth in recent months. This is evident mainly (but not solely) in the key segment of consumer prices – the price core, where price growth is now at low single-digit levels in annual terms.
Therefore – unless something unpredictable happens – inflation will decline sharply close to the upper boundary of the tolerance band around the CNB’s 2% target at the start of next year, following the unwinding of the above-mentioned statistical effect that will cause annual consumer price inflation to fluctuate at the close of this year.
Petr Král, Executive Director, Monetary Department