Consumer prices slightly decreased as expected. Seasonal decline of holiday packages and rising fuel prices affected most the overall price level. Inflation remains above 3 percent threshold; however, core inflation is still negative and enables the central bank to keep monetary conditions relaxed.
Prices of services related to travelling and recreation usually declines after the end of summer holidays. This time they dropped by 3.3%. Opposite seasonality can be observed in prices of clothing and footwear as summer sales usually end in August. The third major contribution came from fuel prices rising by 2.6%. The reason is obvious, an increase of crude oil prices in last three months. While headline inflation keeps above 3%, core inflation (excluding food, fuels, regulated prices and impact of changes in tax rates) still remains below zero. In fact, the Czech economy is already three years in deflation. This supports current stance of the central bank. Its interest rates are close to zero. If the CNB needs to ease monetary conditions further, FX interventions are likely to be used. By the end of 2012, CPI is forecasted to decline below 3%. Inflation course in 2013 depends on VAT change that is still waiting to be approved or rejected by the Parliament.