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Lidovky.cz

May inflation higher than expected

  11:36

Czech consumer prices rose faster in May than most analysts expected; food and fuel prices pushed up by global commodity prices

Czech consumer prices in May increased 0.5 percent compared with the previous month, primarily due to an increase in prices for food and beverages.

“May’s inflation ended above the average market expectation,” Komerční banka (KB) analyst Jan Vejmělek said in a market comment. Both KB and analysts polled by news agency Reuters had predicted a 0.3 percent increase on the month.

Year-on-year, inflation was 2.0 percent, rising from 1.6 percent in April. The Czech National Bank (ČNB) had forecast a 1.7 percent increase, and news agency Bloomberg predicted 1.8 percent. “Inflation is thus located exactly on the ČNB inflationary target. Compared with the ČNB forecast, May’s inflation is 30 basis points higher,” Vejmělek said.

The month-on-month price growth was particularly due to bread and cereals, in which prices of bread rose by 12.3 percent and rolls and baguettes by 16.9 percent. Prices of fruit increased due to the rise in prices of bananas and apples, up 12.4 percent and 8.9 percent, respectively. The prices of wine and beer went up 2.4 percent and 2.3 percent. The rise in automotive fuel prices continued, but at a slower pace than in the previous two months; in May it amounted to 0.7 percent.

Prices dropped in clothing and footwear; certain food items such as rice and eggs; household appliances and information processing equipment. ‘Inflation is being pulled by cost pressures, in particular commodity prices on global markets.’

“Inflation is being pulled by cost pressures, in particular commodity prices on global markets. Demand pressures on inflation are absent, and given the expected development of household consumption, we will not experience these pressures even in the near future, which means profit margins will be tame for the time being,” Vejmělek said. “Inflationary pressures will be further apparent in the prices tied to oil price developments … and we expect higher prices in the coming months also for food items.”

The average inflation rate, that is the increase in the average consumer price index in the 12 months to May 2011 compared with the average CPI in the previous 12 months, stood at 1.8 percent in May, according to the ČSÚ.

“However, adjusted inflation should remain low this year. Overall, this year, we expect average consumer price growth of 1.8 percent with a certain upward risk due to higher prices of gas for households. Among other things, next year will be influenced by tax changes; the excise tax on cigarettes will increase and also the lower rate of VAT will rise to 14 percent. Overall, consumer prices should increase 2.9 percent on average next year,” Vejmělek said.

According to preliminary data from Eurostat, the year-on-year increase in the average harmonized index of consumer prices (HICP) in the EU-27 was 3.2 percent in April 2011. The highest annual rates were observed in Romania, with 8.4 percent, and Estonia, with 5.4 percent. In Germany, the year-on-year growth accelerated to 2.7 percent. According to preliminary calculations, the HICP in the Czech Republic in May 2011 increased by 0.6 percent, month-on-month, and accelerated to 2.0  percent, year-on-year.