Inflation in consumer prices is driven by two opposite forces. Recession weakens inflationary forces stemming from the demand side of the economy, while weaker currency can increase prices of imported goods. However, pricing power of importers may be lower in times likes this.
Inflation breached the band surrounding CNB’s inflation target. In the absence of an major changes in taxes or administrative prices (like in 2008) we can expect inflation to fall further in month to come. It is likely to go close to zero in July or August this year. Worsening GDP outlook and a possible flirt with deflation should lead to further rate cuts. Nevertheless, an extreme FX volatility can deter CNB from decisive steps.
Actual: 1.5% m/m; 2.2% m/m (January)
Consensus: 1.1% m/m; 1.7% y/y
Previous: -0.3% m/m; 3.6% m/m (December)