Inflation falls substantially in October 2022 due to a drop in electricity prices

The CNB comments on the October 2022 inflation figures

According to figures released today, the price level increased by 15.1% year on year in October 2022. Inflation thus decreased substantially compared to September, even though it 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 rose by 14.9% year on year in October. The year-on-year increase in consumer prices in October was more than two percentage points smaller than expected in the CNB’s autumn forecast. The negative deviation was due to administered prices, which reflected a fall in electricity prices due to the statistical inclusion of the energy savings tariff. This effect was not included explicitly in the CNB’s forecast. By contrast, food price inflation and core inflation were higher than expected in the autumn forecast. Fuel prices and the first-round effects of changes to indirect taxes were in line with the forecast. 

The marked slowdown in inflation in October is due mainly to a substantial drop in year-on-year administered price inflation as a result of government measures to help with high energy prices. Without these measures (an energy savings tariff approved until the end of 2022 and a waiver of the renewable sources fee until the end of 2023), inflation would be 3.5 percentage points higher in October. Core inflation declined only slightly in October and thus remains high, reflecting a slow fading of foreign industrial producer price inflation and a dampening of domestic demand. However, the effect of the previous recovery in consumption is still visible in goods prices, whose growth accelerated further. By contrast, growth in services prices within core inflation decreased slightly. This also reflects a further decline in the previously strong contribution of the cost of owner-occupied housing in the form of imputed rent. Food price inflation picked up further. This was fostered by high agricultural commodity prices and domestic agricultural producer prices, reflecting both the rising energy costs and additional economic impacts of the war in Ukraine. The growth in fuel prices eased slightly further in October on account of oil market developments and a fall in margins (especially on petrol) in refineries and at filling stations. 

The inclusion of the energy savings tariff in prices will noticeably lower reported inflation in the remaining months of this year by comparison with the CNB’s autumn forecast. Year-on-year price growth will be volatile in the next few months at the turn of the year. According to the forecast, additional government measures to help with high energy prices in the form of a cap on electricity and gas prices from the start of next year after the end of the energy savings tariff will partly dampen administered price inflation. The other inflation components will slow. In mid-2023, inflation will fall to single-digit levels. This will be fostered by a further easing of cost pressures, a cooling of foreign economic growth as well as of domestic demand and the labour market, reflecting among other things tighter monetary policy. 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 autumn forecast. 

Petr Král, Executive Director, Monetary Department