Food prices fell by 0.6% m/m in August, according to CEEMarketWatch calculations, based on preliminary figures of the statistical office. The decline is projected to be much stronger than in August 2018, when food prices fell by only 0.1% m/m. As a result, we project that annual food price growth will ease from 4.1% y/y in July to 3.6% y/y in August. The first-round impact on headline inflation should reach about -0.1pps.
The monthly decline by bread and potato prices, which fell by 3.4% m/m and 11.7% y/y, respectively. Sugar and apple prices mitigated that effect, but meat and beer prices fell again, by 1.1% m/m and 1.7% m/m, which was enough to make sure that food prices will keep falling. We are not that at ease with the sustained growth of agricultural prices, though, but developments are broadly in line with the latest PPI release, which pointed to a deceleration of animal product price growth. Therefore, we believe that there won’t be a big deviation from our proxy this time, similar to July.
With fuel prices likely to keep falling this month, the odds are that there will be once again a downward impact from volatile prices. It might not be enough to decelerate headline inflation, as core inflation has strengthened in recent months and it might keep doing so, on low unemployment and robust wage growth. Nevertheless, we believe that CPI inflation won’t reach 3% y/y in August and probably ease slightly, to about 2.8% y/y, if developments remain similar. It will be still an overshooting of the CNB inflation forecast, which is 2.6% y/y in August, but the CNB has indicated clearly that it will not intervene on short-term inflation fluctuations.