CZECHIA: Headline Inflation Seen Falling Back to Target in August

CPI data for August is on the docket tomorrow morning (08:00BST/09:00CET), with the headline figure expected to fall to +2.0% Y/Y from +2.2%. Lower fuel prices and favourable base effects are expected to drive much of the decline. 

• Goldman Sachs expect headline inflation to +1.9% y/y. They expect the decline to be driven by lower fuel prices, FX strength and the continued weakening in underlying price pressures. Specifically, they estimate that a +2.2% m/m fall in fuel prices will reduce sequential headline inflation by 0.1bps. Looking ahead, they expect external factors (the strengthening in the Czech NEER, low global gas and food prices) to continue to drive Czech inflation lower.
• ING note that annual headline inflation likely softened in August and returned to target, reflecting the decline in fuel prices and further disinflation of regulated energy prices. Food prices likely remained in marginal annual decline, while core inflation likely increased in August.
• UniCredit note that inflation is likely to have fallen back to 2.0% y/y in August. Fuel prices are likely to have led such a drop. In addition to their recent weakening, the high basis of comparison from August last year is likely to have also played a role. In the remainder of the year, they expect pro-inflationary factors (inertia of service-price growth, real-wage growth) to prevail, lifting CPI above 2%. In December, UniCredit think inflation could even jump above 2.5%, driven by a low basis for comparison.