Czech inflation continues its growth. In February, the yoy price accelerated to 2.5%, and it is thus 0.4pp higher than the CNB expected in its February forecast. This development thus corroborates our view that the bank board will scrap the FX floor already in the second quarter of this year. Moreover, high inflation might attract more speculative capital, which bets on CZK appreciation after the end of the FX floor.
Consumer prices advanced 0.4% mom. Growth was supported mainly by food prices which increased 1.4% on the back of rising prices of vegetables due to colder weather in Southern Europe. Food prices even reached historically high levels. Also, prices at restaurants and hotels increased further, which might still be the lagged effect of the introduction of electronic sales registration (introduced in December). This pushed core prices up 0.3% mom. Gas prices for households acted in the opposite direction when they dropped 2.1%. The decrease came later than we expected and was milder than we originally assumed. Regulated prices thus declined 0.4% mom and erased their increase from the beginning of the year. Fuel price growth decelerated to 0.7% in February.
In yoy terms, the strongest growth was again recorded by fuel prices, which increased 16.8% due to a very low statistical base. The yoy growth of food prices surged to 4.6% and core inflation stays at 2.0, thus the only group impeding the inflation is administered prices, which declined 0.6%.
Today’s statistical office report once again surpassed the CNB’s February forecast, which predicted February inflation at 2.1%. The deviation thus widened to 0.4pp. Price dynamics thus surprised the CNB on the upside for the sixth month in a row. The development corroborates our view that the bank board will remove the FX floor in the second quarter of the year. We expect this to happen at the regular monetary policy meeting on 4 May. Yet, we see a significant risk that the bank board will make the decision in April.
Inflation should keep overshooting the CNB target for the whole year even though we do not expect food prices to remain at their current elevated level. We expect that the situation on the food market will calm down and prices will correct. However, their yoy growth will still support headline inflation. The statistical base effects of fuel prices will also push inflation up. In the second half of the year, the core element will be the main driver. Core prices will be supported by accelerating wage growth and sound increases in consumption. Overall, we see growth in inflation as spread across the categories of the consumer basket, making it rather robust. The only drag on inflation is administered prices.
External demand for Czech goods remains strong
January’s external trade surplus printed CZK19.4bn. The statisticians thus confirmed that external demand for Czech products remains sound as exports increased 1.8% mom. Demand for cars in the euro area is still visible, which benefits Czech automotive producers. The trade surplus in the motor vehicles category increased CZK5.9bn. yoy. The sound performance of the German economy has been passing through also into other categories of external trade. In contrast, the mineral fuel balance is deteriorating, dampened by growing commodity prices. The trade balance of oil and gas declined CZK3.0bn, and the metals balance dropped CZK2.3bn. The balance of computer, electronic and optical products significantly deteriorated.
Compared with last year, we expect the overall trade surplus to decline slightly. Imports should be higher on the back of growing commodity prices, increasing household consumption and a recovery in investment, which is often import-intensive.