CBA Say Jan Repricing Was Still Above Long-Term Avg, Komercni See Scope For Faster CNB Rate Cuts

Commenting on today's inflation data Czech Banking Association Chief Economist Jakub Seidler reminds that inflation was +6.0% M/M in January 2023 but would be +3.4% if adjusted for the impact of the energy savings tariff. It was +4.4% M/M in January 2022 and the long-term average for 2010-2020 was +0.9% M/M. From this perspective, the +1.5% M/M reading for this January suggests that the seasonal repricing at the beginning of the year was significantly weaker than in the past two years but stronger than the average from the pre-pandemic decade. Seidler notes that regulated energy prices and tax hikes applied to alcoholic beverages and tobacco were the main pro-inflationary factors in M/M terms. The Y/Y figure was weighed on by base effects across various categories. In Seidler's view, the key inflationary risks are (1) the moderation in the disinflationary evolution of food prices, (2) a change in pricing behaviour, whereby companies would spread the pass-through of costs onto consumers over several months.

• Komercni banka write that the M/M figure was significantly smaller than sequential readings from January 2022 and 2023, with tax adjustments and regulated energy prices boosting the latest outturn. They see core inflation at around +3.0% Y/Y, down from +3.6% in December. They expect inflation to hover just above +2.0% Y/Y for the rest of this year, revising their earlier average 2024 CPI forecast of +2.7%. In their view, this will allow the CNB to cut interest rates faster than they were assuming earlier (i.e. two-week repo rate at 4% at end-2024, neutral rate at end-2025). They note that the risks to the inflation outlook are (1) the CZK exchange rate and (2) the potential acceleration of core inflation towards the end of the year.