At the beginning of last year, Czech central bankers were rejoicing that they had managed to tame inflation. Annual consumer price inflation reached just 2.0 % in February 2024, the Czech National Bank's (CNB) target. However, the inflation figure for December last year was released today. And it showed that the central bankers' joy was premature. The CNB is worried about inflation again. Consumer prices rose by 3.0 % year-on-year in December last year. Inflation thus hit the upper limit of the CNB's tolerance band. We have the highest inflation since the end of 2023. But it is true that the market and the CNB were expecting an even bigger jump in inflation upwards - up to 3.3 %. Moreover, month-on-month consumer prices did not rise, but fell by 0.3 %.
Year-on-year inflation in food prices in particular had put the pedal to the metal. Prices across the food and non-alcoholic beverages section rose by 1.7 % yoy. However, we are paying significantly more for some staple foods. Egg prices jumped by more than a third year-on-year (36.3 %) and oil and fat prices added almost a fifth (16.9 %). Chocolate prices rose by 28 %.
Housing costs are also rising. Apartment rents have risen by 6.2 %. We pay significantly extra for going to restaurants or going on holiday. So here too, prices are rising visibly faster than the average rate of inflation. Tobacco prices jumped by 7.0 %. Finally, it has to be said that fuel is an increasingly minor drag on inflation. These were only 2.6 % lower year-on-year in December, when as recently as November
decreased by 7.6 %. Aggregate prices of goods rose by 1.7 % and prices of services by 5.0 %. Nothing new under the sun. Services continue to increase in price.
The average inflation rate for 2024 was 2.4 %. This was its lowest level in 6 years. On the other hand, we were again above the 2% level that central bankers are sensitive to. Also this year the inflation rate will end above the 2% target of the Czech National Bank on average. We estimate that the average inflation rate in 2025 will reach 2.5 % or slightly higher.
Also out today was a report that retail sales were up 4.3 % y/y in real terms in November 2024. So retail sales growth rate slowed down slightly. A slightly better result was expected. Fuel sales rose by a significant 10.8 %. Non-food sales grew more modestly: by 5.5 %. And food sales were only up by a negligible 0.4 % year-on-year. So they are hardly growing. Looking even more closely
breakdown of online stores are steamrolling the rest of the retail industry. This is evidenced by the fact that online and mail order stores grew sales by 14.1 %. We expect retail as a whole to grow by 4.5 % for 2024 and add 3.5 % this year.
And what do investors say? The rate of inflation may have accelerated, but the market was expecting a much stronger rise. The latest acceleration in the inflation rate retrospectively justifies the move by the Czech central bankers, who halted the process of cutting interest rates before the end of last year. On the other hand, inflation is not accelerating enough to make it certain that the central bankers will also postpone further
The Czech National Bank may start cutting interest rates again as early as the beginning of February. Because of today's statistics, the koruna has more room to weaken than to strengthen in the coming weeks. It will continue to be the case that the koruna will not be able to appreciate below the 25 koruna per euro level for a longer period of time.
Jiří Cihlář, Markéta Šichtařová
Eurodeník 13. 01. 2024 Next Finamce s.r.o. Nextfinance.cz
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