Consumer prices rose by 0.7 m/m in April %

Photo: illustration photo/Xinhua/Lin Shanchuan

It already looked like inflation had been tamed. During February and March, consumer prices rose year-on-year
Inflation at that time got to where central bankers like to see it most, at the Czech National Bank's 2% target.
Banks. April, however, brought a sobering up. Consumer prices rose by 0.7 % month-on-month in April.
Year-on-year, consumer prices jumped by 2.9 % in April. This was 0.9 percentage point higher than the pace in
March. The market was counting on an increase in the inflation rate to only 2.4 %. Weaker price growth was also expected by the Czech National Bank.
This means only one thing - increased inflation is once again making its presence felt.

Food prices were the driver of the acceleration in annual inflation to almost 3 % in April. In their case, the slowdown in
rate of discounting. While in March their prices fell by 5.9 % year-on-year, in April they were only 2.7 % lower.
It appears that as household consumption recovers, the willingness of retailers to continue offering bigger discounts is decreasing. Interestingly
chocolate with an April price increase of 9.2 %. The stock market rise in cocoa bean prices (due to a poor harvest) makes the
chocolates more luxurious goods.

Housing remains a significant sponsor of inflation. Apartment rents rose by 7.2 % and electricity prices by
12.0 %. The "vices" are also getting more expensive. The prices of spirits jumped by 10.4 %, wine by 5.5 %, beer by 6.5 % and tobacco products by
7.1 %. Moreover, inflation is no longer being pushed down by the cheapening of petrol and diesel. As the Middle East region
tensions rose, the situation turned. Fuel prices were 8.4 % higher year-on-year. We'll also pay extra if
we'll want to treat ourselves to a nice dinner or a vacation. Food service prices are up 7.9 % and prices
accommodation services by 9.2 %.

Finally, it is important to look at the fact that while prices of goods in aggregate rose by only 1.4 %, prices of services
have added 5.3 %. It is the still elevated inflationary pressures in the services sector that will continue to hold back the slowdown
inflation rates.

The high benchmark base of early 2023, when the inflation rate reached almost 11 %, will remain in the near term
a significant help in containing inflation. On the other hand, rising service prices will feed inflation. Inflation will be
also support that food will not get cheaper as fast as in recent months. Moreover, inflation has already
will not be held back by year-on-year cheaper fuel. Based on the latest data, we expect this year's
average inflation rate of 2.6 %. Moreover, this will not be all. Although inflation seemed to be on the
of central bankers is resolved, the Czech National Bank may struggle to keep the inflation rate in
tolerance band. This is +/- one percentage point from the Czech National Bank's 2% target.

The koruna strengthened to CZK 24.80/EUR in response to the higher-than-expected inflation rate.
the koruna last in early February. This is evidence that the market is quickly reassessing bets on a rapid reduction
interest rates of the Czech National Bank. It is clear that the pace of the reduction in the Czech National Bank's interest rates
slows down from 50 to 25 basis points in individual sessions and may then stop altogether. What will it be in
practice mean? Mortgage discounting will slow down. On the other hand, interest rates on savings and term
deposits will remain high for a longer period of time. For the crown, this means confirmation that it should remain strong against the levels of
of the last few weeks. Specifically, the koruna should not weaken back above the 25 koruna level in the coming days
euro. After all, central bankers won't mind this either, although in their latest forecast they calculate for this
quarter with an exchange rate of CZK 25.20/EUR.

The dollar has a quiet start to the week, weakening only slightly to 1.078 USD/EUR.
The dollar will be influenced by the statistics that will be released in the coming days - mainly the US consumer
inflation. This may change the stakes for future interest rate cuts overseas. So the next few days will be on the dollar
fickle.

Markéta Šichtařová