Producers’ prices increased for the ninth month in a row, by 1.7% y/y in September, thus reporting the strongest pace of increase since May, the Czech stats office said on Monday. Producers’ prices were up by 0.4% m/m in September on the back of higher prices of coke and refined petroleum products, chemicals (up by 0.6% m/m), wood (up by 0.4% m/m), basic metals (up by 0.3% m/m), as well as food prices (up by 0.2% m/m on the back of dairy products increasing by 1.4% m/m), statisticians said.
The faster annual pace of increase of industrial producers’ prices reflected the increasing at a stronger pace prices in both mining and manufacturing, while utilities prices fall eased in the month. Producers’ prices in manufacturing increased by 2.1% y/y in September, inching up from 2.0% y/y in August, as prices of basic metals expanded by 5.1% y/y in the month, speeding up from 4.9% y/y growth in August. Food producers’ prices also reported robust increase of 4.1% y/y in the month, on the back of dairy products surging by 17.3% y/y, bakery prices increasing by 3.9% y/y and preserved meat prices – by 2.9% y/y. Coke and refined petroleum products also contributed to the headline producers’ price increase in the month, statisticians said. At the same time, producers’ prices of transport (down by 2.6% y/y), of ICT products (down by 1.8% y/y) and of utilities (down by 1.1% y/y) prevented the industrial producers’ prices from increasing at a faster rate in September. The slight acceleration of the pace of increase of the manufacturing producers’ prices overall bodes well with the developments of import prices of inputs for the manufacturing industry – the import prices of manufactured goods classified chiefly by material increased by stronger 3.8% y/y in August and of mineral fuels – by stronger 4.5% y/y, while import prices of crude materials slowed down markedly to 4.6% y/y.
Separate data on agricultural producer prices showed that they remained on positive territory after contracting for fourteen months through February – they increased by 10.8% y/y in September, slowing down from 12.5% y/y growth in August, on the back of the increasing for the sixth straight month crop prices (up by 7.2% y/y). The latter was on the back of growing prices of fresh fruit (up by 37.9% y/y), potatoes (up by 10.4% y/y), cereals (up by 6.7% y/y) and oil plants (up by 3.9% y/y). We may expect agriculture producers’ prices to continue growing this year due to low base effects, as well as estimated to be weaker by some 12.8% this year basic cereal harvest.
Overall, the continued acceleration of the pace of increase of producers’ prices in September, already seen in the speeding up consumer price inflation to 2.7% y/y in the month, indicates that the supply-side inflationary pressures mount, which may keep inflation above the CNB’s 2% target for longer than currently expected – the CNB expects inflation to remain above target this year and return to it around Q2 or Q3 next year. This coupled with the set to become even stronger demand-side inflationary pressures coming from the robust domestic demand and quite strong nominal wage growth that supported the inflation accelerating to match the CNB’s forecast in September, as well as in view of the discussion of the CNB Governing Board during the Sep 27 monetary policy meeting and the fact that it held rates unchanged by only a slim majority, supports our forecast that the central bank is to tighten further the monetary conditions with a 25bps rate hike at the upcoming on Nov 2 monetary policy meeting. Our expectation is also backed by the fact that then the new macroeconomic forecasts are to be published, while this was one of the main reasons for holding rates unchanged in September. At the same time, among the reasons for postponing the move for December could be the fact that the decline of import prices deepened to 1.1% y/y in August (from 0.8% y/y in July), thus confirming the CNB’s expectation that the observed slightly inflationary effect of import prices will turn anti-inflationary because of the subdued foreign producer price inflation and the crown’s firming. Another factor in support of holding fire until December would be the fact that after stagnating for several weeks, the crown has started appreciating again and has firmly crossed the EUR/CZK26 level.