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Increasing costs push inflation up

The first month of the year brought an increase in producer prices. Agricultural prices added 0.5% mom and industrial prices grew even 0.7% which means that after three years they emerged from yoy declines and added 2.1%. The yoy drop of agricultural prices weakened. It is thus apparent that cost pressures are rising in the economy. In the coming months, these should spill over into consumer prices.  

Industrial prices increased 0.7% in January and after three years printed yoy growth (+2.1%). We recorded growth especially in the categories of oil products and chemicals. In January, oil prices hovered around USD55 per barrel and thus were slightly higher than in December. A decrease of gas (-1% mom) and electricity (-1.9% mom) prices is interesting as their final price for consumers increased. We thus see a repetition of the same situation as last year. Prices in the food industry increased once again in reaction to growing agricultural prices.    

Agricultural prices increased 0.5% mom in January. Even though this represents a 0.3% decrease after seasonal adjustment, the yoy decline narrowed compared with December. The mom increase was due to virtually all the main categories of prices.

Construction work prices increased only 0.1% mom in January, while prices of construction materials followed the developments on commodity markets and increased 0.5% mom. Service prices (-0.3% mom) were once again affected by volatile advertising prices. After their exclusion, service prices increased 0.2% mom.

We expect prices in industry will increase 3.6% this year after they declined over the previous three years. They will represent a cost factor and thus support our view that consumer price inflation will overshoot the CNB’s target throughout 2017 and probably 2018, as well. This is true even though we expect the CNB to scrap the floor on 4 May, which will be followed by subsequent appreciation. Given the significant decrease of agricultural prices at the beginning of last year, we expect the yoy decline will soon be erased. That would represent pressure on food prices in terms of the consumer basket. Food prices should grow 2.4% this year, in our estimate.