Inflation comes in slightly below the CNB’s forecast in November 2020

The CNB comments on the November 2020 inflation figures

According to figures released today, the price level increased by 2.7% year on year in November 2020. Inflation was thus slightly lower than in October, remaining in the upper half of the tolerance band around the CNB's 2% target. Consumer prices adjusted for the first-round effects of changes to indirect taxes also rose by 2.7% year on year in November.

The November annual consumer price inflation figure was 0.2 percentage point lower than the CNB's current forecast. This was due in part to food price inflation, which slowed more markedly than expected in November. Core inflation, which remained the same as in October, also contributed in equal measure to the slightly negative deviation from the forecast. Administered price inflation, which, as expected, slowed further due to electricity prices, was also slightly lower than forecasted. The continued year-on-year decline in fuel prices was in line with the forecast, as were the first-round effects of changes to indirect taxes.

The drop in inflation in November is in line with the CNB's current forecast. According to the forecast, inflation will decrease into the upper half of the tolerance band around the target in 2020 Q4. This will be due to the anti-inflationary demand effects of the second wave of the coronavirus pandemic amid subdued external and above all domestic economic activity. However, cost pressures will remain elevated for some time. A cooling labour market and slower wage growth will dampen growth in domestic costs, but this will be offset by the previous sharp depreciation of the koruna linked with the onset of the second wave of the COVID-19 pandemic. Inflation will keep falling next year, initially due to the fade-out of the high growth in market prices seen in early 2020 and subsequently also to a moderation of total cost growth, which will also reflect renewed appreciation of the koruna. Core inflation and food price inflation will both slow. Lower growth in electricity prices and a decline in gas prices will be reflected in a decrease in administered price inflation. By contrast, the fall in fuel prices will dissipate. Inflation will be close to the 2% target over the monetary policy horizon, i.e. in late 2021 and early 2022.

Petr Král, Executive Director, Monetary Department