Inflation forecast for December: stable position at 5 percent

Inflation in December gave us some time to breathe out. According to our estimates, consumer prices rose by 0.2% m/m and the inflation should therefore remain stable at 5.0% y/y. Foodstuffs and fuel in particular were again behind the increase in prices. The October and November trend of rising food prices continued in December but in a milder form. The price of gasoline (Natural) went up by a further CZK 0.10 in December and diesel by some CZK 0.80 per liter.

Inflation is now about 1 percentage point above the CNB prognosis. What matters for the monetary policy, however, is the future inflation. The data on January inflation which will reflect the tax reform, the deregulation and the increase in the prices of energy are likely to provide a much clearer picture. The expected rate of inflation, fast economic growth, lower unemployment and higher wages all call for a further interest rate hike. However, the strong crown is the main counter-argument. With the strengthening crown in the past days, the interest rates are less likely to go up.