Contrary to expectations, inflation slowed in May and returned to the CNB forecast in year-on-year terms. The main reason for the slowdown in inflation was the fall in food prices. On the other hand, prices of services rose after the easing of anti-epidemic measures, and core inflation accelerated slightly month-on-month. Despite slower headline inflation, speculations about an early increase in CNB interest rates are unlikely to fall significantly.

Shipping costs have risen sharply and fierce competition for ocean freight capacity is the new normal. With new capacity only slowly coming onstream, freight rates are expected to continue to reach new highs this year and will remain above their pre-pandemic levels in the longer term

Data published in June will confirm a slight decline of the Czech economy at the beginning of the year and a moderation in average wage growth. At the same time, monthly data for April will show a rapidly growing economy due to the easing of anti-pandemic measures. The reopening of services will likely lead to faster inflation in May. We expect the Czech National Bank to raise interest rates at its meeting in August. However, financial markets expect a hike as early as the June meeting.

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