Development of consumer price indices - 4. quarter of 2005 and year 2005

Q4 2005 saw an acceleration of the year-on-year growth of the price level of consumer prices.
Consumer prices increased in Q4 2005 by +2.4% compared to the corresponding period of last year. It is by 0.5 percentage point more than in Q3 2005. Especially two COICOP divisions of the consumer basket participated in the acceleration of the year-on-year price growth and these were housing, water, electricity, gas, recreation and culture. In housing, natural gas prices markedly increased month-on-month in October (+17.4%), in recreation and culture radio and TV charges increased (by +33,3 % and + 21,6 %). This also showed in the acceleration of year-on-year growth of regulated prices to +8.0% (from +6.0% in Q3) while market prices when compared to Q3 2005 grew equally by 0.7%.



As a consequence of the increase of natural gas prices in October in housing, the price of natural gas grew by 21.3% in Q4, which is the highest increase in the last four years. Prices of electricity grew by +4.9%, water supply by +4.5%, sewerage collection by +5.8%, refuse collection by +9.7%.

Apart from the increase of radio and TV charges, the year-on-year growth of prices in recreation and culture was also affected by higher prices of recreational services (+5.0%), newspapers and magazines (+3.5%). Prices of equipment for the reception, recording and reproduction of sound and pictures continued to decrease.

Development of prices in transport was influenced mainly by automotive fuel prices, which culminated in September and despite their decrease during Q4 they remained by +12.5% higher year-on-year (almost like in Q3 2005). Prices of transport services increased by +4.2% (from +3.4% in Q3). Lower than last year were prices of passenger cars, motorcycles and bicycles, even though in the case of passenger cars and motorcycles this decline was reduced.

The highest price increase was observed in communications, in which prices of public telecommunication services increased by +14.8% (as a result of the change of flat rate for operation of residential telephone lines) and prices of postal services were higher by +15.5% due to higher postage introduced in February 2005.

Prices of food and non-alcoholic beverages remained slightly lower than in the corresponding period of 2004, even though in October and November they reached above the level of the corresponding months in 2004.
Lower than last year were prices of flour, pork, oil and fats, eggs and sugar. On the other hand prices of rice, beef, southern fruit, dried fruit and fresh vegetables increased (+6.5%, +3.7%, +6.2%, +12,7% and +3.5%, respectively).

Growth of prices of goods in total increased by +1.6 % (from 0.9% in Q3) and prices of services by +3.7% (from 3.5% in Q3).
Analysis of 2005

Month-on-month development of consumer prices was in 2005 influenced by administrative changes, which included:

- price increase of electricity (+4.9%) and natural gas (+1.4%) from January
- price increase of postage (+15.5%) and charges in old people’s home (+5.2%) from February
- decrease of natural gas prices (-2.3%) from April
- price increase of public telecommunication services (+16.6%) from June due to the change of flat rate for operation of residential telephone lines
- price increase of natural gas (+4.3%) from July
- increase of excise tax on tobacco products, which had only a slight effect in December 2005
- price increase of student hostel accommodation as a result of a change in the grant system from September
- price increase of natural gas (+17.4%), radio and TV charges (+21,6 % and +33.3%) from October

Market prices, which had an effect on month-on-month price development:

- automotive fuel prices gradually grew from March to September, mostly in March (+8.4%) and in September (+11.6%). On the contrary in the last three months of the year the prices dropped and had an impact on reducing inflation
- prices of food whose bi-directional price movements were to a great extent influenced by seasonal prices of fruit, vegetables and potatoes
- seasonal prices of holydays and spa stays in the Czech Republic and abroad whose prices periodically change and hence affect the increasing or decreasing month-on-month inflation
- moderate but constant price decrease in clothing and footwear, furnishings, household equipment and routine maintenance of the house’

The average month-on-month growth rate was +0.2% in 2005, the administrative prices being +0.6%, while in market prices the positive and negative effects of inflation neutralised each other and the average month-on-month growth was zero.


Year-on-year development

Average year-on-year inflation rate in 2005 reached 1.9%, which is by 0.9 percentual points less than in 2004. In the long term comparison the level of inflation in 2005 was the third lowest since 1990 and according to preliminary data it is possible to expect that it will also be below the average when compared to the EU.

The market prices, which grew by +0.7%, had a great effect on this development whereas the administrative prices grew by +5.8%. Apart from the administrative changes in consumer prices, year-on-year development of consumer prices was until April influenced by VAT change on services (5% until April 2004 and since May 2004 19%), which appeared mainly in the deceleration of quarterly price growths in restaurants and hotels and miscellaneous goods and services. In restaurants and canteens the year-on-year price growth for food in restaurants dropped from 7.3% in Q1 to 2.0%in Q4 2005, in company canteens from 12.4% to 1.8%. Similarly, in personal service (contained in miscellaneous goods and services) the price growth decelerated from 10.0% in Q1 to 3.1%in Q4 2005. Also in tobacco products, even though their prices (except December 2005) were constant, the price growth decelerated, which was affected by the gradual increase of cigarette prices in 2004 due to the increase of excise tax.

Prices of services in total increased by +3.7% and prices of goods by +0.8%.


From the breakdown of y-o-y increment of consumer prices in 2005, which includes a combination of the amount of price growth and weight of individual COICOP divisions of the consumer basket, it results that what showed the biggest influence on the price level increase in 2005 by +1.9%
- were prices of housing, their share being 1.1 percentage point
- prices of restaurants and hotels raised the price level by 0.4 percentage point
- prices in communications and prices in recreation and culture both added 0.2 percentage point
- the smallest positive influence (0.1 percentage point) had prices of alcoholic beverages, tobacco, transport, health and miscellaneous goods and services
- decrease of prices in clothing and footwear had an anti-inflation influence; their influence on the decrease of the price level was –0.2 percentage point
- likewise the decrease of prices of food and non-alcoholic beverages and prices in furnishings and household equipment reduced the level of inflation by -0.1 percentage point

In housing prices grew mainly for natural gas (+12.9%), electricity (+4.0%), heat and hot water (+4.5%), water supply (4.4%), sewerage collection (+5.9%), refuse collection (+9.9%).

In restaurants and hotels the prices grew for food in company canteens by +6,1 %, in public catering by +3,8 % and in school canteens by +4,5 %. Prices increased markedly (+7.9%) in accommodation services mainly as a result of price increase in student hostel accommodation (change in grant system).

The fastest price growth occurred in health (price increase of pharmaceutical products) and communications where prices of postal services grew by 14.3% and prices of public telecommunication services increased by +8.0%.

The price growth in recreation and culture was particularly influenced by the increase of radio and TV charges, higher prices of recreational services (+6.8%), newspapers and magazines (+4.4%) and package holydays (+3.7%). Prices of equipment for the reception, recording and reproduction of sound and pictures continued to decrease.

Development of prices in transport was influenced primarily by automotive fuel prices that in average increased by +7.1% in 2005. Prices of automotive fuel underwent a rapid development in 2005; in Q1 they reached the highest y-o-y price growth (+21.6%) in the last five years. In Q4 they recorded a considerable decrease in their growth. This development corresponded with the development of crude oil prices on world markets, development of prices of domestic producers of coke and refined petroleum products and import prices of mineral fuels, mineral oils. The price growth of automotive fuel showed in the increase of prices of transport services, which grew by +2.8%, of which by +4.2% in Q4. Prices of both new and second-hand passenger cars decreased.
In miscellaneous goods and services prices of personal services increased by +5-2% and prices of financial services by +6.3%.

Price level of food and non-alcoholic beverages was in all quarters of 2005 lower than in the corresponding periods of 2004. Lower than last year were prices of bread and cereals by –1.9% (of which prices of flour by –14.1%), eggs by –15.9%, potatoes by –36.5%, fresh vegetables by –2.3%, tea –3.1%. On the other hand prices of rice, beef, southern fruit and dried fruit increased (+6.2%, +4.9%, +5.4% and +25.4%, respectively).

A long-term price decrease in clothing and footwear, furnishings, household equipment and routine maintenance of the house caused decreasing of the price level. The decrease of prices for clothing, footwear, equipment for the reception, recording and reproduction of sound and pictures is the result of competitive pressures in the market, caused by the excess supply and import of cheap products from the Asian countries. Similar situation is in food prices, where imported goods and the policy of chain stores favourably influence the price development of food.


Harmonized index of consumer prices in the EU25

According to preliminary data of Eurostat, the year-on-year increase in the average harmonized index of consumer prices (HICP) in the EU25 was +2.2% in November 2005 (-0.2 percentage point down on October). Prices grew most in Latvia (+7.5%), the least in Finland (+1.0%) and Poland (+1.1%). Growth of prices in Slovakia accelerated to +3.6% in November (from +3.5% in October). On the other hand, in Germany, the rise in prices slowed down to +2.3% (from +2.4% in October). In the Czech Republic, the y-o-y HICP growth reached +1.9% in December 2005 (+2.2% in November). According to the flash estimate published by Eurostat, the y-o-y HICP increase for the Euro-zone was 2.2% in December 2005.

While the HICP values in the Czech Republic in 2004 were above the average of the EU countries, in 2005 the Czech HICP values were in most of the months lower, except for October and November when the values were almost identical.