Inflation comes in below the CNB forecast in July 2022

The CNB comments on the July 2022 inflation figures

According to figures released today, the price level increased by 17.5% year on year in July 2022. Inflation thus increased slightly further, significantly exceeding 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 rose by 17.4% year on year in July.

The year-on-year increase in consumer prices in July was more than a percentage point smaller than expected in the CNB’s summer forecast. The deviation was due to all components of inflation except changes to indirect taxes. It was caused most of all by food prices and to a lesser extent by core inflation, administered prices and fuel prices.

Core inflation rose only marginally on a month earlier but remains high. It reflects peaking domestic demand pressures and continued strong growth in costs due to a further increase in gas and electricity prices on international exchanges and persisting problems in global value chains. The effect of strong domestic demand is especially visible in goods prices, which accelerated further. By contrast, growth in services prices slowed, with the expected effect of costlier summer holidays materialising only partly. The previously accelerating contribution of the cost of owner-occupied housing in the form of imputed rent slowed somewhat in July. As expected, administered prices picked up further, reflecting continued growth in energy bills for households. The increase in energy prices on exchanges to exceptional highs is also being driven by Russia’s invasion of Ukraine. The war is also reflected in rising food prices due to soaring prices of agricultural commodities, fuelled by increasing energy costs and by the role of Ukraine in global wheat production. The exceptionally strong growth in fuel prices seen in previous months as a result of a surge in oil prices owing to the war and sanctions on Russian oil exports to the EU slowed somewhat in July, reflecting a slight correction of oil prices.

The summer forecast expects inflation to peak slightly above 20% in the months ahead. The price growth will then start to slow as the growth in production costs falls, the purchasing power of households declines and the stabilising effect of the previous monetary policy tightening, which is helping to cool domestic demand, manifests itself. The downward trend in inflation will become stronger in the course of next year due to these factors. Inflation will return close to the CNB’s 2% target over the monetary policy horizon, i.e. in the first half of 2024 for the summer forecast.

Dana Hájková, Director, Monetary Policy and Fiscal Analyses Division