The statisticians have served us figures on consumer inflation. Consumer prices rose by 0.3 % month-on-month in October. Year-on-year, consumer prices rose by 2.8 % in October. This was 0.2 percentage point higher than in September. This was exactly the acceleration in the rate of inflation that was anticipated.
On the other hand, it is obvious that the Czech central bankers must be uneasy about rising inflation. The inflation rate is gradually approaching the upper edge of the tolerance band, which is set at +/- one percentage point from the 2 % level. Inflation is already at a six-month high.
The year-on-year rate of price growth continues to be significantly fuelled by the rising price of housing. Specifically, apartment rents increased by 6.2 %, water rents by 10.9 %, and sewerage prices by 13.4 % year-on-year. In addition, there was a visible increase in electricity prices - specifically by 10.5 %. (Here we can clearly see the European energy transition.)
Food prices have also continued to rise year-on-year, but the rate of increase has slowed. Even so, we can find items that rose significantly in price - butter prices were 40.6 % higher year-on-year. And also pushing up inflation is the fact that prices of food services were 6.9 % higher year-on-year and accommodation services 9.0 % higher. And so the list could go on.
One might wonder why the overall rate of inflation does not exceed 3 % after the significant increase in the price of most key items. This is because of the brake in the form of cheapening fuel. Fuel prices were 11.4 % lower year-on-year in October. In their case, we have been observing cheaper prices for three months in a row. In the case of diesel, we see the lowest value since last July and in the case of Natural 95 gasoline even since October 2021.
Finally, prices of goods rose by 1.3 % in aggregate and prices of services by 5.3 %. In recent months, nothing has changed in the brisk rise in the price of services. Their still high growth rate will continue to worry central bankers.
The high benchmark base has been a significant help in holding down inflation for much of this year. However, this is no longer the case for energy prices, for example. Moreover, we will see continued high increases in service prices in the months ahead. This will feed inflation. In addition, food has already ended its year-on-year decline. At the end of the year, inflation will be flirting with the 3% level, i.e. the upper limit of the Czech National Bank's tolerance band. This year, the inflation rate will end above the Czech National Bank's 2% target on average. We expect inflation to average 2.5 % this year.
The koruna is weakening slightly today towards CZK 25.33/EUR. The koruna is losing some of its gains from the second half of last week. After today, it is again clearer that the concern about inflation rising back will be the topic that will dominate the pre-Christmas meeting of the Bank Board. Betting that the Czech National Bank will take a break from cutting interest rates before the end of the year will eventually push the koruna to modest gains. This pressure will be all the more felt as the European Central Bank continues to cut rates gradually due to weaker inflation. The dollar continued its gains today, moving to 1.065 USD/EUR. This is the strongest level since the beginning of May.
While the Prague Stock Exchange index PX added 0.5 % today, the Slovak index SAX only stagnated.
Jiří Cihlář, Markéta Šichtařová
Eurodeník 11/11/2024 Next Finamce s.r.o. Nextfinance.cz
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