Czech Republic’s headline inflation likely to surpass 1 pct mark by 2016-end

Czech Republic’s consumer prices in April rose 0.6% m/m and 0.6% y/y. The rise was mainly due to seasonal clothing, fuels and alcohol and tobacco. Hence inflation returned to the levels seen in January after decelerating for a brief period of time. Current inflation is more than the latest projection of the central bank of 0.3%.

According to the central bank’s comment, last month’s print shows a mild inflationary risk to the new projection. During its previous board meeting, the Czech National Bank had mentioned that wage growth and inflation both will direct its further action. The current level of inflation suggests that the Czech economy is not inflation-free. Meanwhile, prices of goods in stores are still declining, while the services prices have been rising regularly.

In the coming months, headline inflation is expected to be close to the current level and is likely to surpass the 1% mark by the end of 2016, said KBC Market Research in research note.  Even of inflation is expected to accelerate slowly, it will not be sufficient to risk the real financial position of consumers. In any case, wages are projected to rise faster in 2016 due to shortage of skilled workers and because domestic businesses are performing quite well.