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Benign January Inflation Data May Open Door to More Aggressive CNB Easing

CZECHIA
  • JP Morgan say food prices were the main source of downside surprise in headline inflation, falling significantly by 1.4% m/m. They add that core CPI likely fell to 3.6%oya in December, a bit higher than expected.
  • Given the uncertainty on how inflation will settle in 2024, JPM think for February at least the CNB will opt to proceed in 25bps steps, cutting the key rate to 6.5%. From March, however, they see the board accelerating the pace to 50bps for a couple of meetings, if and only if, January data comes in benignly, avoiding any of the so-called “January re-pricing risk”. After May, the pace would return to 25bps, with the policy rate ending the year at 4.25%, they believe.
  • By ING’s calculations, core inflation is roughly stable at -0.1% m/m, giving a drop from 3.9% to 3.5% in December. Therefore, both headline and core inflation remain below the CNB’s forecast (7.0% and 3.6%), as in previous months. The downside surprise today also raises the chance that January inflation may be below 3%, ING note, which would open the door for more aggressive CNB cuts.
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