CZECHIA: Food Prices Emerge As Key Driver Of Inflation Surprise Again

Local sell-side desks have played down the surprise upturn in Czechia's headline inflation, attributing it to another swing in notoriously volatile food prices, which have driven many deviations from consensus in the recent months.

• Česká spořitelna note that in the medium term, inflation is driven by the recovery in household consumption and there was nothing in today's data to challenge this story. On the other hand, food prices continue to drive deviations from analyst estimates. They expect inflation to move within the upper half of the +/-1pp tolerance band around the +2.0% Y/Y target, depending on volatile food prices, while a low comparative base may push the December print closer to +3.0% Y/Y. Domestic inflationary pressure should weaken next year, but fiscal expansion and the introduction of ETS2 represent risks for 2027.
• ČSOB agree with the general view that food prices continue to drive inflation surprises and are now much more volatile than in the past. Otherwise, price developments were broadly as expected, although services disinflation seems to be grinding to a halt. They expect inflation to cool to +2.4% Y/Y in November before a one-off bounce in December and a significant drop (possibly below +2% Y/Y) in January. They remind of the so-called 'January effect', referring to heightened uncertainty around the CPI print for the first month, as many regulated prices are adjusted at the beginning of the year.
• Komerční banka write that volatile food prices drove the surprise in inflation again, as they rose by 3.9% Y/Y (and 1.1% M/M). Services price growth slowed down and Komerční banka estimate that core inflation may have also ticked lower to +2.7% Y/Y from +2.8%. In their view, the structure of October inflation data does not indicate that the October upturn was of fundamental nature. They believe that inflation should get closer to the +2.0% Y/Y target in the coming months and temporarily fall below there in 2026, averaging at +1.5% Y/Y next year. However, expansionary fiscal policy may push inflation back above the target later on.
• Raiffeisenbank note that inflation surprised to the upside on the back of volatile food prices, which have been 'on a seesaw' in recent months. They expect food prices to push inflation higher rather than lower next year amid their heightened sensitivity to external factors, such as weather, diseases, poor harvests, and rising prices for farmers. In their view, inflation will range between +2.5-2.6% Y/Y this year and should approach the +2.0% Y/Y target in 2026.