Food prices grew by 2.6% m/m in May, according to CEEMarketWatch calculations, based on weekly data from the statistical office. We explain the big increase, not very typical for this time of the year, with colder-than-usual weather in the country. However, the weather forecast is improving, so food prices may ease by the end of the month, though we believe some increase will be most probably reported. Under the current assumption, food prices should rise by 3.4% y/y in May, up from 1.9% y/y in April, which should bring 0.3pps to headline inflation. However, if food prices do start falling towards the end of the month and report only a mild increase (like in the vicinity of 1% m/m), then food price growth will remain unchanged in annual terms, with no impact on headline inflation.
The monthly increase was driven by dairy products, as well as by beer, potato and apple prices. We should single out beer prices, which rose by 8.3% m/m in May after falling by 4.7% m/m in April. We remind that CPI inflation decelerated mostly because of alcohol and tobacco prices in April, so if there is a reverse price movement, it will probably reverse the downward impact, at 0.2pps in April, on headline inflation. It means we can expect some acceleration in core inflation, which may push CPI inflation once again above the CNB forecast, which is 2.7% y/y in May. Given that fuel prices have continued to grow, even if at a milder rate than in April, the odds are that there may be some more notable upward inflationary pressure this month.
Even if CPI inflation goes above the target, we doubt it will immediately shift the CNB board towards more tightening. Still, if inflationary pressure remains higher than projected in June, especially if food prices keep growing, then a hike might come this summer.