Czech Koruna: CPI keeps CNB on hold but risks build – Commerzbank

Commerzbank’s Tatha Ghose notes that Czech August CPI matched expectations and CNB forecasts, keeping inflation within target and allowing rates to stay unchanged on 17 September. However, underlying momentum is rising, with core and services inflation elevated, and the preconditions for a CNB rate hike intensifying, potentially bringing an end to the wait-and-see stance by November if core inflation and wages climb further.

Inflation momentum nudges CNB closer

"Czech August CPI picked up to 1.9%y/y from 1.7%y/y in July, exactly in line with market expectations and Czech National Bank’s (CNB’s) forecast. The usual year-on-year chart would therefore show inflation still within target, which allows CNB to keep rates unchanged at the 17 September meeting."

"On this framing, there would be no immediate need to respond with monetary policy. Latest wage data were also viewed to be dovish, which strengthens this narrative."

"But, in reality, the price level rose by 0.3%m/m, with fuel prices the main driver – up by an estimated 7%m/m – while food prices fell by 1.1%m/m and mitigated the headline effect."

"Core inflation likely remained at 3%y/y, and services inflation is still elevated at 4.5%y/y. In our preferred seasonally-adjusted month-on-month manner of examining inflation momentum, inflation is now exceeding the 2% target on annualised basis, even after exponential smoothing."

"This does not make a September rate hike any more likely, for sure. The Czech acceleration is still slower than the Polish one. But the direction is clear: the pre-condition for a rate hike is intensifying. If core inflation and wages were to drift higher in coming months too, CNB’s wait-and-see stance would come to an end by November."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)