Inflation comes in slightly above the CNB forecast and well above the upper boundary of the tolerance band in January 2022
The CNB comments on the January 2022 inflation figures
According to figures released today, the price level increased by 9.9% year on year in January 2022. Inflation thus accelerated sharply compared with the end of last year, 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 9.5% year on year in January.
The upswing in consumer price inflation in January was 0.5 percentage point bigger than expected by the CNB’s winter forecast. This deviation was due mainly to food prices, whose year-on-year growth increased further, contrary to expectations. Fuel prices were also somewhat higher than expected by the winter forecast in January. The forecasts for core inflation and administered prices broadly materialised. The effect of changes to indirect taxes was somewhat smaller than forecasted, due to a slightly lower effect of the reintroduction of VAT on energy.
January 2022
year-on-year in %
MPR Winter 2022
actual value
CPI
9.4
9.9
Administered prices
13.0
13.2
First-round impacts of changes to indirect taxes
0.6
0.4
Adjusted for changes to indirect taxes
Prices of food, beverages, tobacco
4.1
5.0
Core inflation
9.7
9.7
Fuel prices
27.4
28.4
Monetary policy-relevant inflation
8.9
9.5
The published figures reflect the exceptionally strong and across-the-board inflation pressures in the domestic and foreign economies observed since mid-2021. The continued growth in core inflation is a result of the pass-through of the sizeable previous growth in firms’ personnel and material costs and the recent rise in energy prices on commodity exchanges. This has been bolstered by the usual repricing in January and solid demand in the Czech economy, which is leading to growth in the profit margins of producers and sellers. Prices of services and goods are rising sharply. Within core inflation, the contribution of imputed rent is also gaining further in strength. Imputed rent expresses the cost of owner-occupied housing, which has a relatively high weight in the domestic consumer price index and reflects long-running rapid growth in property prices and prices in construction. Administered prices started to surge year on year at the start of the new year due to a rise in housing-related energy prices after the end of the temporary waiver of VAT on electricity and gas. Food price inflation reflects domestic demand pressures and growth in world agricultural commodity prices as a result of a combination of strong global demand and supply side constraints.
According to the CNB’s winter forecast, inflation will peak close to 10% in the first half of 2022. In the light of the current information, inflation is more than likely to somewhat exceed that level in the months ahead. It will continue to be dominated by the contribution of core inflation, which will remain very high for some time, as it will continue to reflect significant domestic demand pressures and strong growth in producer prices in the Czech Republic and abroad. Rapidly rising administered prices will also strongly affect headline inflation throughout this year as a result of double-digit growth in energy prices for households. Growth in domestic costs will initially remain strong, driven mainly by swift wage growth. However, inflation will ease gradually in the second half of this year. This will be supported by a decrease in growth in import prices, aided by an appreciating koruna. In addition, the stabilising effect of monetary policy via domestic demand will foster a gradual decline in inflation as a result of the significant interest rate increases made by the Czech National Bank. Inflation will return close to the 2% target over the monetary policy horizon, i.e. in the first half of 2023.
Petr Král, Executive Director, Monetary Department
Inflation comes in slightly above the CNB forecast and well above the upper boundary of the tolerance band in January 2022
The CNB comments on the January 2022 inflation figures
According to figures released today, the price level increased by 9.9% year on year in January 2022. Inflation thus accelerated sharply compared with the end of last year, 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 9.5% year on year in January.
The upswing in consumer price inflation in January was 0.5 percentage point bigger than expected by the CNB’s winter forecast. This deviation was due mainly to food prices, whose year-on-year growth increased further, contrary to expectations. Fuel prices were also somewhat higher than expected by the winter forecast in January. The forecasts for core inflation and administered prices broadly materialised. The effect of changes to indirect taxes was somewhat smaller than forecasted, due to a slightly lower effect of the reintroduction of VAT on energy.
The published figures reflect the exceptionally strong and across-the-board inflation pressures in the domestic and foreign economies observed since mid-2021. The continued growth in core inflation is a result of the pass-through of the sizeable previous growth in firms’ personnel and material costs and the recent rise in energy prices on commodity exchanges. This has been bolstered by the usual repricing in January and solid demand in the Czech economy, which is leading to growth in the profit margins of producers and sellers. Prices of services and goods are rising sharply. Within core inflation, the contribution of imputed rent is also gaining further in strength. Imputed rent expresses the cost of owner-occupied housing, which has a relatively high weight in the domestic consumer price index and reflects long-running rapid growth in property prices and prices in construction. Administered prices started to surge year on year at the start of the new year due to a rise in housing-related energy prices after the end of the temporary waiver of VAT on electricity and gas. Food price inflation reflects domestic demand pressures and growth in world agricultural commodity prices as a result of a combination of strong global demand and supply side constraints.
According to the CNB’s winter forecast, inflation will peak close to 10% in the first half of 2022. In the light of the current information, inflation is more than likely to somewhat exceed that level in the months ahead. It will continue to be dominated by the contribution of core inflation, which will remain very high for some time, as it will continue to reflect significant domestic demand pressures and strong growth in producer prices in the Czech Republic and abroad. Rapidly rising administered prices will also strongly affect headline inflation throughout this year as a result of double-digit growth in energy prices for households. Growth in domestic costs will initially remain strong, driven mainly by swift wage growth. However, inflation will ease gradually in the second half of this year. This will be supported by a decrease in growth in import prices, aided by an appreciating koruna. In addition, the stabilising effect of monetary policy via domestic demand will foster a gradual decline in inflation as a result of the significant interest rate increases made by the Czech National Bank. Inflation will return close to the 2% target over the monetary policy horizon, i.e. in the first half of 2023.
Petr Král, Executive Director, Monetary Department