CZECHIA: Flash January CPI Due Shortly Ahead Of CNB Rate Decision

The CZSO will release flash January CPI data at the top of the hour, with headline inflation expected to cool to +2.6% Y/Y from +3.0% prior, according to Bloomberg consensus. The figure undershot expectations in December, with both the CNB and sell-side analysts expecting it to print at +3.3% Y/Y, above the central bank's tolerance zone. The  central bank's staff won't comment on the data, but just hours later the Bank Board will announce its interest-rate decision. Note that this will be the first CPI release since the CZSO revamped the way it reports inflation and said it start publishing flash and final readings each month, as opposed to just a single report before. It is worth mentioning that January inflation is seen as both influential (due to the annual repricing of goods and services at the beginning of the year) and more volatile than in other months.

• HSBC note that inflation may decline sharply to +2.4% Y/Y from +3.0%. However, they admit that their forecast is "skewed to the downside on energy prices while what matters for the CNB is core CPI where we do not expect any improvement." They are the only desk we've seen calling for an on-hold rate decision today.
• ING write that +2.5% Y/Y is their "best guess" for the January reading, while "core inflation" (expected at +2.6% Y/Y) "likely picked up in the same month, driven by continued price growth inertia in the service sector and more potent annual rent dynamics." Food prices may be a potential driver of January's consumer prices, in their views, as Christmas discounts expire. Furthermore, imputed rents may provide an upside surprise, as "the growth in residential property prices gained traction."
• JP Morgan write that a dip in inflation rate to their expected above-consensus +2.7% Y/Y should be enough for the CNB to cut rates. However, their recent research showed that "the typical CPI surprise historically is around 0.4pp (in either direction)." A large upside surprise could derail a cut, but "it has to a be a big surprise."
• Komercni banka expect inflation to moderate to +2.5% Y/Y, chiefly on the back of regulated price dynamics amid lower energy prices for households. On the other hand, they see core inflation accelerating to +2.7% Y/Y, due to the low comparative base. In their view, "while inflation no longer seems to be a problem, the slowdown in industry continues."