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News

Agricultural prices suggest a continuation of food price growth

17.03.2017
Company: Komerční banka, a.s.

February’s figures showed another increase of agricultural prices, suggesting food price growth is at an end. That should keep CPI inflation around the current levels. Industrial prices posted another increase, this time 0.4% mainly due to a rise in commodity prices on the global market. Service prices recorded a slight revival, which shows businesses in this sector are regaining their pricing power.   

Industrial prices increased 0.4% mom in February, and their yoy dynamics accelerated to 3.1%. The rise in commodity prices was behind their growth. In February, the growth of commodity prices was not about oil but other commodities as metals took over. Prices in the food industry increased only marginally, which contrasts with the rapid growth of prices of agricultural products.

Agricultural prices continued their growth when they added 1.2% mom. This represents an increase of 0.5% on seasonally adjusted wages. In yoy terms, agricultural prices dropped 0.8%, which is a significantly milder drop than January’s 3.0%. The higher prices of fruit and vegetables are behind the growth. To a big extent, their development reflects the bad weather in Southern Europe, which destroyed part of the harvest.

Construction work prices increased again only 0.1% mom in February while the prices of construction materials followed the developments on commodity markets and increased 0.6% mom. Service prices (+0.3% mom) were once again affected by volatile advertising prices. After their exclusion, service prices increased 0.2% mom. We thus see a continuous acceleration of their yoy growth to 0.6%. The businesses in this sector have thus been regaining their pricing power.

We expect prices in agriculture will normalise over the one- to two-month horizon after the effect of the worse weather in Southern Europe fades. The prices in industry should grow further but their dynamics should be weaker. In March, we recorded a drop in oil prices on global markets, which is set to further impede the growth of prices in industry. In contrast, the service prices will accelerate on the back of growing demand pressure, in our view.

 

Tags: Finance | Retail |

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