Year-on-year inflation was down by 0.1%-point to 1.7%, i.e. 0.3%-point below the central bank’s target and forecast. Although inflation is 1.7%, this is primarily due to the increased prices of agricultural and energy commodities on global markets.
Prices in the Czech Republic are not being driven upwards by demand-pull inflation at all. What is more, plenty of consumer goods are even much cheaper on a year-on-year basis because demand has not yet recovered since the last economic recession. In addition, demand is curbed by fiscal austerity measures. No significant price increase is likely to occur on the Czech market in the months to come either. Thus inflation may remain below the 2% target of the Czech National Bank until the middle of the year at least.
Costly oil is already included in fuel prices while food prices will start to seasonally fall over the course of time. We need to wait for a crop to see how food prices will continue to develop. Hence inflation is not and probably will not be a problem of the Czech economy – despite the unfavourable conditions on the global commodity market – because inflation with administrative moves excluded (net inflation) again fell, to 1.2% this time, as opposed to 2% as recently as in December. Czech inflation is primarily driven by external factors, on which the CNB policy has a negligible impact, whereas demand-pull inflation is still nowhere.