In July, Czech consumer prices rose faster than expected but in line with the CNB forecast. The main CPI driver was the prices of packaged holidays. We expect inflation will decelerate due to weaker demand, but so far this effect has been weaker than anticipated in our forecast.
In July, Czech consumer prices increased 0.4% mom and year-on-year inflation increased to 3.4%. That was on the top of market estimates but in line with the CNB forecast. The market median expectation was at 3.1% and our estimate 3.0%.
The main CPI driver was the prices of packaged holidays. Without this seasonal effect CPI would decline 0.1% mom and decelerate below 3.0% yoy. Given the current environment, the evolution of the prices of packaged holidays is a bit problematic. It is interesting that their price follows more or less the usual seasonal pattern.
On the contrary, food prices declined 1.5% mom and prices of clothes and footwear were also lower. Prices at petrol station increased 4.6%, which was slightly above our estimate. In the year-on-year terms the prices of fuel remain deeply negative at -14.6%.
We still expect inflation will decelerate due to weaker demand. But so far this effect has been weaker and/or slower than expected. In July, the monthly price increases decelerated but less than we expected. Importantly, core inflation, which excludes volatile food and energy prices, has not shown much willingness to decelerate. According to our calculation, on the monthly seasonally adjusted basis core inflation accelerated high to 0.75% up from 0.50% the previous month.
Inflation for July was in line with the CNB forecast but significantly above market expectation. CZK slightly appreciated against EUR after the data release.