Case For November CNB Rate Cut Stronger After Release Of Below-Forecast Inflation Data

The release of softer-than-expected inflation data yesterday fuelled bets on a quicker start to the CNB rate-cutting cycle. Below summarises sell-side views published in reaction to the inflation report:

• Commerzbank believe that it is questionable whether the CNB's willingness to cut interest rates will rise, given that the fall in inflation in September was mainly driven by regulated prices (energy). They warn that oil prices are rising again and the labour market remains tight, keeping upside risks to the inflation outlook in place.
  
• Ceska sporitelna point to larger than expected declines in food, energy, fuel and holiday package prices. They believe that demand-side inflationary pressures are weakening significantly faster than expected by the CNB. They have recently pushed back their rate-cut call to December from November, but now admit that yesterday's data could convince the CNB to ease policy earlier.
• Goldman Sachs write that the dinsiflation trend should continue in the remainder of the year after a brief increase in October, as they see a slowdown in core momentum in recent months. They note that the easing cycle could start before the year-end, while pointing to the CNB's cautious stance and noting that the central bank will get much economic data (including the final ECB rate decision for the year) between the November and December meetings.
• ING write that the latest inflation print might be the lowest this year, due to the anticipated temporary rebound on the back of base effects. They expect inflation to resume its decline and reach the CNB's target in early 2024, which could justify a 25bp rate cut in November.
• JP Morgan note that the downside surprise in the latest inflation readings was a function of non-core elements, food and regulated energy prices. They expect the CNB to move towards easing in coming months, with a 25bp cut pencilled in for the December meeting. They await fresh CNB communications to validate/challenge this view, seeing the case for November or February easing as very strong as well.