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Inflationary pressures in the economy strengthened in August

Company: Komerční banka, a.s.

The dynamics of industrial producer prices accelerated in August. This was mainly due to the development of oil prices, although prices of food products increased, as well. Prices of market services also accelerated more significantly in August. On the other hand, the growth of construction work prices remained subdued. Nevertheless, higher investment activity in the private sector and the revival of engineering construction works promise an increase of prices in this segment.

In August, prices in industry increased 0.2% mom. In year-on-year terms, their dynamics accelerated to 1.4% from 1.1% in July. The development on world commodity markets, especially of oil prices, was the main reason for the price rise. Prices of coke and refined petroleum products were higher, but prices of food products went upward, as well. Moreover, oil price growth did not stop even in September. Brent oil is currently traded at around $56/barrel. It last hovered around these levels in April. As a result, producer prices are likely to continue to grow.

Agricultural producer prices recorded a fall of 0.9% mom in August. However, they still maintain a double-digit growth rate (12.5%) yoy. Compared with last month, prices of poultry, fruit and potatoes dropped. On the other hand, milk prices continued to grow.

Market services prices grew 0.4% mom in August and 1.8% yoy. The prices of employment services grew markedly (4.1%), reflecting the tightened situation on the labour market. Due to rising wages and households’ appetite to spend, we expect prices in services to maintain an upward trend.

Prices of construction work remain subdued. In August, they increased 0.2% mom, which represents an increase of 1.6% yoy. Revived investment activity in the private sector as well as increased use of EU funds, which should bestir engineering works, should push prices in this segment higher.

Overall, inflationary pressures in the domestic economy will increase, which is why we expect the central bank to hike interest rates before the end of this year. At the September 27 meeting the rates will remain unchanged, but rhetoric will, in our opinion, be hawkish. We expect the CNB to hike rates on November 2, when it has a new Inflation Report available. The crown could thus break an important psychological level of 26.00EUR/CZK in the coming weeks. 

Tags: Finance |

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