Consumer Price Inflation Rates Show Decline Due to High Base Year, Analysts Note

Analysts have observed a decline in consumer price inflation rates, attributing it to the high base year. The inflation rate for June dropped to 9.7% from May’s 11.1%, in line with market expectations. This decline in annual inflation is primarily driven by the comparison with a high base year, resulting in a slowdown across most sectors, despite certain areas experiencing price increases.

Jakub Seidler, the chief economist of the Czech Banking Association, explained, “The decline in year-over-year inflation in June was mainly due to the high base year, just like in previous months.” Most sectors contributed to the deceleration in annual inflation, even though prices rose in specific segments.

The slowdown in inflation can be attributed to the high comparison with the base year. Additionally, the strong Czech crown, decreasing international transportation costs, and cheaper raw materials and energy provide further room for a faster decline in the inflation rate, according to Petr Dufek, chief economist at Creditas Bank. However, Dufek pointed out that despite having relatively subdued demand compared to other EU countries, the decrease in prices has yet to be fully reflected in-store.

Analysts expect inflation rates to continue declining in the upcoming months. Miroslav Novák, an analyst at Akcenta, noted that the impact of increased consumption taxes on fuel would be negligible due to the weight of fuel in the consumption basket. He further stated, “Given the development of agricultural producer prices, there is also room for food price hikes.”

Seidler anticipates a slowdown in inflation rates in the second half of the year. He stated, “While the decline in year-over-year inflation was relatively quick in the first half of the year, the decline is likely to slow down in the second half of the year, and annual inflation is unlikely to drop below the seven percent threshold.”

Patrik Rožumberský, an economist at UniCredit Bank, expects the pace of inflation rate decline to weaken in the third quarter. He highlighted factors such as imputed rent, food prices, and fuel as contributing to this less favorable base. Radomír Jáč, Chief Economist at Generali Investments CEE, suggested that by the end of this year, the year-over-year inflation rate could be around seven percent, with a significant slowing of year-over-year consumer price growth expected in early 2024.

Article by Prague Forum

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