CZECHIA: Inflation Data Seen As Supportive Of CNB's Current Stance

Following the release of flash August CPI data this morning, local sell-side analysts consider it unlikely that a downtick in headline inflation could persuade the CNB to abandon its commitment to keeping interest rates unchanged for now.

• Česká spořitelna note that inflation remains elevated on the back of household consumption and food prices. In their view, inflation will fluctuate within the upper half of the +/-1pp tolerance band around the +2% Y/Y target in the coming months. Headline inflation may remain around +2.5-2.6% Y/Y in September/October, but much will depend on volatile food prices. In their view, domestic inflationary pressures should weaken in 2026, as restrictive monetary policy and an uptick in unemployment start having an impact, but there are two risks that may boost price growth in 2027: post-election fiscal policy and the introduction of ETS2. They think that the CNB is unlikely to change its hawkish stance and will keep interest rates unchanged going forward (their baseline scenario), although a single 25bp cut next year cannot be ruled out.
• ČSOB note that fading food inflation is starting to have a positive impact on annual inflation outturns, but services are still showing strong sequential momentum. ČSOB expect a slight slowdown in headline inflation in the coming months and a short-term increase above +2.5% Y/Y into the year-end. Lower food inflation may drive the aggregate figure lower in 2026, with average for next year expected at +2.2% Y/Y. According to ČSOB, the problem for the CNB is not about the level of inflation but about its structure. Robust wage growth and heightened services inflation call for caution. Hence the ČSOB change their call and now expect the CNB to keep interest rates on hold for the foreseeable future, albeit with a modest bias towards lower rates, with interest-rate hikes set to remain off the table.
• JP Morgan write that food prices topped forecasts, defying expectations of a firmer seasonal decline, while fuel prices likely drove most of the decline in aggregate energy prices. In their view, core inflation appears to be in line with expectations. In their view, the release 'does not alter the Czech macro story in any way, confirming core CPI stuck closer to +3% Y/Y than to the CNB's +2% Y/Y target.' Coupled with decent growth data, this should reassure the CNB in its decision to halt the easing cycle. JP Morgan expect stable rates through this year and next.
• Komerční banka note that the inflation outturn widened the negative deviation from the CNB forecast, while core inflation seems to have stagnated at +2.7% Y/Y. Robust services price growth remained the main driver of core inflation. In their view, inflation will continue to gradually decline towards the target for the rest of the year, averaging at +1.9% Y/Y next year. This should open the door to further interest-rate cuts at the end of this year, although from the CNB's perspective, the current pace of wage growth is a risk to longer-term price stability.
• Reiffeisenbank think that the data will not change the CNB's determination to keep interest rates unchanged in the coming months. Wages are growing at pace, while services inflation remains persistent, as the structure of inflation remains problematic.