Development of consumer price indices - 4. quarter of 2006 and year 2006

Consumer prices decreased in Q4 2006 in comparison to Q3 2006 by 0.9%. This decrease was brought about mainly by a price drop in recreation and culture, transport, housing, food and non-alcoholic beverages. Main factors of the price drop were decrease of package holidays prices due to the end of the main season by 14.8%, drop of automotive fuel prices by 8.9%, natural gas by 5.5%. In food, prices were particularly lower for fresh vegetables by 16.8%. Slightly lower were prices of flour, poultry, cocoa, coffee and tea.

In connection with the beginning of the new school year the biggest increases occurred in education. In clothing and footwear prices increased mainly due to new collections of winter clothing and footwear. In food, prices were higher for potatoes by 15.9%, eggs by 3.8%, rice by 3.4% and southern fruit by 3.1%.


In connection to the quarter-on-quarter development there was a marked deceleration of the year-on-year growth of consumer price level in Q4 2006. Consumer prices increased in Q4 2006 compared to Q4 2005 by 1.5%, which is by 1.4 percentage points lower than in Q3 2006. A marked decrease of the year-on-year price growth to an almost half the value caused a reduction of the price growth in housing, food and non-alcoholic beverages, transport, recreation and culture. The growth of regulated prices reduced to 3.5% (from 7.8% in Q3 2006) and market prices to 0.8% (from 1.3% in Q3 2006).
In housing price growth of natural gas slowed down to 0.4% from 24.6% in Q3. The reason was a different month-on-month development of prices in October 2006 (drop by 5.5%) and in October 2005 (growth by 17.4%). Electricity prices increased by 9.0% and heat prices by 8.0%. Due to an almost zero growth of natural gas prices, prices in housing recorded the lowest year-on-year price growth since Q2 2005. In spite of this, housing still had the biggest share on the year-on-year growth of consumer prices (1.1 percentage points).

In food and non-alcoholic beverages the year-on-year price growth slowed down mainly for bread and cereals to 10.6% (from 13.2% in Q3), fresh vegetables to 5.0% (from 19.7%). Prices of fruit from the temperate zone turned from a growth of 11.4% in Q3 to a drop by 1.2%. Lower than last year were also prices of coffee, tea, cocoa, chocolate and chocolate products, flour, poultry, vegetable oils, butter. On the other hand, prices of potatoes increased by 113.3% (by 71.2% in Q3).

Development of consumer prices of bread (namely bread, rolls and baguettes) corresponded to the development of prices of cereals of agricultural producers in Q1-Q3 2006.

The turn from a price growth to a price drop occurred in the price development in transport due to the price development of automotive fuel, which dropped by 7.7% in Q4, while in Q3 they increased by 1.0%. Prices of transport services increased by 3.0%.

Deceleration and even a drop of year-on-year price increase was observed also among the results of the last known months as for world prices of Brent crude oil, import prices of mineral fuels, lubricants and related materials as well as prices of industrial producers of refined petroleum products. The drop of consumer prices in the CR was above all affected by a favourable development of exchange rates of CZK to USD in the last months of 2006
In recreation and culture the effect of increased radio and TV charges in October 2005 ceased to affect the year-on-year comparison. The price decrease of audiovisual and photographic equipment and personal computers continued.

Lower than in Q4 2005 were prices in ‘clothing and footwear‘, ‘furnishings, household equipment and routine maintenance of the house‘, however their decrease slowed down in Q4. Slight dropping of prices in ‘clothing and footwear‘, ‘household appliances‘ as well as in ‘equipment for the reception, recording and reproduction of sound and pictures‘, ‘mobile telephones’ reflect competition pressures on the market with those products, which were caused by the offer prevailing over the demand as well as by import of cheap goods from Asian countries. Moreover, as for electric appliances, their assortment is changing quickly due to technical progress connected with reduction of prices.

Price increase of goods in total decelerated to 0.6% (from 2.7% in Q3), price increase of services slowed down to 3.0% (from 3.5% in Q3).


Analysis of 2006

Month-on-month development of consumer prices was in 2006 influenced by administrative changes, which included:

- price increase of electricity (+9.0%), natural gas (+4.8%), heat and hot water (+6.3%), water supply (3.4%), sewerage collection (+5.0%) from January
- price increase of natural gas (+1.4%) from April
- price decrease of local and distant calls from a fixed telephone line from April
- price increase of public telecommunication services (+5.9%) due to the increase of flat rate for operation of residential telephone lines from May
- introduction of CZK 700 charge for qualification examination to drive automotive vehicle from July
- decrease of VAT from 19% to 5% for coffee, cocoa, tea, chocolate and chocolate products from 15 July
- price decrease of natural gas by 5.5% from October

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


- automotive fuel prices, which increased the most in April (+4.8%) and in May (+3.6%) and on the contrary in the last four 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 and in Q3 a marked increase of bread and cereals
- 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
- slight price decrease in clothing and footwear, furnishings, household equipment and routine maintenance of the house in most of the 2006 months

The average month-on-month growth rate of consumer prices was +0.1% in 2006, of which the administrative prices being +0.3% and in market prices 0.1%.


Year-on-year development

Average year-on-year inflation rate in 2006 reached 2.5%, which is by 0.6 percentual points more than in 2005. Therefore the growth rate accelerated for both market prices (to 0.9% from 0.7% in 2005) and administrative prices (to 7.8% from 5.8% in 2005).

Prices of goods in total increased by +2.0% (0.8% in 2005) and prices of services in total by +3.5% (3.7% in 2005).

From the breakdown of y-o-y increment of consumer prices in 2006, 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 2006 by +2.5%
- were prices of housing, their share being 1.7 percentage point
- prices of food and non-alcoholic beverages, transport, post and telecommunications, hotels and restaurants increased the price level identically by 0.2 percentage points
- prices of alcoholic beverages, tobacco, transport, health, recreation and culture and miscellaneous goods and services added identically 0.1 percentage points
- decrease of prices in clothing and footwear had an anti-inflation influence; their influence on the decrease of the price level was –0.3 percentage point
- likewise the decrease of prices in furnishings and household equipment reduced the level of inflation by -0.1 percentage point

In housing prices grew mainly for natural gas (+19.1%), electricity (+9.0%), heat and hot water (+10.7%), water supply (3.5%), sewerage collection (+5.6%).

Prices of food and non-alcoholic beverages were in the first months of 2006 lower than in the corresponding months of 2005. Since June, there has been a turn in their price development mainly as a consequence of increasing prices of bread and cereals, which on average increased by 7.0% in 2006, of which bread by 9.1% and rolls and baguettes by 16.6%. A record breaking growth was recorded for prices of potatoes; prices increased by 67.9%, of which in Q4 by 113.3%. On the contrary, prices of some food were lower than in 2005 (e.g. prices of poultry, fruit, sugar, chocolate, cocoa, tea).

Development of prices in transport was influenced primarily by automotive fuel prices that in average increased by +3.1% in 2006. Prices of automotive fuel underwent a rapid development in 2006; their year-on-year change ranged from +13.9% in February to –10.8% in October. In Q4 they recorded a relatively considerable year-on-year decrease. 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.

In post and communication prices of public telecommunication services increased by 7.5% as a result of their development in Q1 and Q2 2006. The price level of public telecommunication services in the first half year was affected by on the one hand a marked increase of prices caused by cancellation of free minutes in local and distant calls - they were included in lump fees for operation of residential telephone lines –since June 2005 (which had effect until May 2006), decrease of prices for distant calls and calls to mobile networks from a fixed telephone line from April 2006 and an increase in lump fees for operation of residential telephone lines from May 2006.

In restaurants and hotels the prices were higher for accommodation services by 13.7% mainly as a result of change in grant system in student hostel accommodation. Prices of food in public catering increased by +2.0 %, in company canteens by +1.9 % and in school canteens by +1.7 %.

The price growth in recreation and culture was particularly influenced until September 2006 by the increase of radio and TV charges, which occurred in October 2005. Prices of package holydays increased by +1.2%. Prices of equipment for the reception, recording and reproduction of sound and pictures continued to decrease.

In health, particularly prices of spa stays were higher (by 8.0%), prices and additional charges for pharmaceutical products and prices of dental services increased identically by 5.6%.

In miscellaneous goods and services prices of personal services increased by +4.7% and prices of financial services by +4.4%.


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 +1.8% in October 2006 and 2.1% in November 2006. Prices grew most in Latvia (+5.6% and 6.5%) and Hungary (by 6.3% and 6.4%). Among states with the lowest HICP value ranked in October and November the Czech Republic, where the year-on-year HICP increase was 0.8% in October and 1.0% in November. According to the preliminary results, the y-o-y HICP increase accelerated in the CR in December to 1.5%. Growth of prices in Slovakia decelerated in October and November to 3.1% and 3.7% (+4.5% in September). On the other hand, in Germany, it slightly accelerated to +1.1 and 1.5% (from +1.0% in September).

In 2005 HICP values in the CR were lower than HICPEU25 for most of the months. In the end of 2005 and in Q1-Q3 2006 their values came very much closer, in Q4 the Czech HICP went again below the EU 25 average.