Inflation fell further and was only marginally above the forecast in March 2023

The CNB comments on the March 2023 inflation figures

According to figures released today, the price level increased by 15% year on year in March 2023. Inflation slowed further compared to February 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 also rose by 15% year on year in March. 

The March inflation figure was 0.2 percentage point higher than expected in the CNB’s winter forecast.  This was due mainly to substantially faster growth in food prices. Conversely, slightly slower growth in administered prices acted in the opposite direction. Core inflation and fuel prices were broadly in line with the forecast. The first-round effects of changes to indirect taxes, capturing the impact of the January increase in excise duty on tobacco on the prices of cigarettes, have so far been negligible.

Core inflation eased further in March but remains elevated. Its decline reflects a gradual fading of foreign industrial producer price inflation and a downturn in the consumption of Czech households. Growth in prices of goods and services slowed and the contribution of the cost of owner-occupied housing in the form of imputed rent decreased further. Food price inflation remains elevated despite moderating somewhat. This is connected with previous pronounced growth in agricultural and food commodity prices both globally and on the domestic market. Administered price inflation also remains strong but continued to slow slightly in March in the context of a cut in prices of energy supplies by some distributors to below the price cap. As expected, fuel prices switched to a deep year-on-year decline in March. Besides oil market developments and an appreciating koruna, this was due mainly to last year’s high comparison base owing to the start of Russia’s aggression in Ukraine. 

The observed price developments bear out the expectations of the winter forecast that inflation will decline quickly after a temporary acceleration in price growth at the very start of 2023, linked mainly with a marked increase in administered price inflation. Inflation will fall to single digits in the second half of the year. The market components of inflation will moderate due to decreasing cost pressures from the foreign and domestic economies. At the same time, the profit margins of domestic producers, retailers and service providers will undergo a gradual correction. In early 2024, both headline and monetary policy-relevant inflation will decline close to the 2% target, where it will stay until the end of the forecast horizon. This will be also fostered by tightened CNB monetary policy. 

Petr Král, Executive Director, Monetary Department