Czech Koruna: CPI keeps CNB on hold but risks build – Commerzbank

Commerzbank's Tatha Ghose reports that Czech August CPI met expectations and forecasts, maintaining inflation within target and prompting the Central Bank of the Czech Republic (CNB) to maintain interest rates unchanged on September 17. However, inflation momentum is increasing, with core and services inflation on the rise, potentially leading to a rate hike by November if core inflation and wages continue to climb.

Czech August CPI rose to 1.9%y/y from 1.7%y/y in July, aligning with market expectations and CNB's forecast. The year-on-year chart still shows inflation within target, allowing CNB to keep rates unchanged. Wage data were also seen as dovish, supporting this outlook. However, price levels grew by 0.3%m/m, with fuel prices surging by 7%m/m, while food prices dropped by 1.1%m/m, counteracting the headline effect.

Core inflation is likely 3%y/y, and services inflation remains high at 4.5%y/y. In a seasonally-adjusted month-on-month view, inflation has surpassed the 2% target, even after exponential smoothing. While this doesn't favor an immediate rate hike, the conditions for one are strengthening. If core inflation and wages rise further, CNB's cautious stance would likely end by November.