Czech inflation stagnated at 2% yoy in March, in line with market consensus. At more decimal places, consumer price growth was 1.97% yoy, the same as in the previous month. This was only marginally higher than our estimate of 1.94%. Compared to the CNB’s last forecast, published in early February, headline inflation was significantly lower, with the central bank expecting 2.9% yoy for March. However, significant deviations from the CNB’s forecast had already occurred in January and February.

Czech inflation stagnated at 2% yoy in March, in line with market consensus. At more decimal places, consumer price growth was 1.97% yoy, the same as in the previous month. This was only marginally higher than our estimate of 1.94%. Compared to the CNB’s last forecast, published in early February, headline inflation was significantly lower, with the central bank expecting 2.9% yoy for March. However, significant deviations from the CNB’s forecast had already occurred in January and February.

Consumer prices rose by an average of 0.1% mom, which was in line with our forecast. The structure of mom inflation also broadly corresponded to our projections. In March, the main increases were in fuel prices (+1.6% mom) and regulated prices (+0.7% mom), the latter reflecting a 53.3% rise in the price of the annual motorway vignette. On the other hand, food prices continued to fall, by 0.8% mom. This was partly offset by an increase in alcohol and tobacco prices of 0.5% mom, including the impact of higher excise duties on tobacco products. Food and non-alcoholic beverages were the only group in the consumer basket to have recorded a price decrease on an annual basis (-5.9% yoy), and this is the main reason why headline inflation has remained at the CNB's 2% target. In contrast, growth in regulated prices accelerated from 6.0% to 6.6% yoy, boosted by higher motorway tolls, while growth in fuel prices picked up strongly from 1.2% to 4.8% yoy.

Core inflation fell from 2.8% yoy in February to 2.7% yoy in March. This was above our estimate of 2.5% yoy, but below the CNB’s forecast of 3.3% yoy. We estimate that seasonally adjusted mom core inflation eased from 0.46% to 0.30%. The previous month’s reading was likely influenced by the postponement of the usual annual price adjustment from January to February, as some sellers waited for new energy price lists. Price developments for goods and services continued to diverge markedly. As in February, goods prices were unchanged mom and rose only slightly by 0.1% yoy. Services price growth slowed from 0.7% mom in February to 0.4% mom in March, but accelerated from 5.2% to 5.4% yoy. The services sector remains the main reason why core inflation, which is the key indicator for the central bank, has not yet fallen to the 2% target. It is therefore likely that the rapid rise in services prices will remain the reason for the CNB board to lower interest rates only gradually.

We expect both headline and core inflation to remain within the central bank’s tolerance band, i.e. below 3% yoy, until the end of the year. Headline inflation is likely to accelerate towards 2.5% yoy in 4Q24, in our view. However, this should be a technical effect from last year’s lower comparison base, as market energy prices started to fall in 4Q23. Since the beginning of this year, however, this favourable effect has been offset by a significant increase in the regulated components of energy prices. We expect core inflation to remain in the upper half of the CNB’s tolerance band, i.e. above 2% yoy, as growth in services prices is likely to remain high – it tends to be more persistent than growth in goods prices.

We expect funding costs to remain high in the first quarter of this year, despite several cuts in the CNB's key interest rate. Costs will be increased by regulatory payments, which are traditionally visible at the beginning of the year. Compared to the same period last year, we do not expect a reversal of provisions, but rather an increase. The effective tax rate is expected to be in line with previous quarters.

Announcement date: Thursday, 25 April 2024 at 7:00 a.m.

We expect funding costs to remain high in the first quarter of this year, despite several cuts in the CNB's key interest rate. Costs will be increased by regulatory payments, which are traditionally visible at the beginning of the year. Compared to the same period last year, we do not expect a reversal of provisions, but rather an increase. The effective tax rate is expected to be in line with previous quarters.

Since the end of December, the Czech National Bank has cut interest rates from 7.0% to 5.75%. However, we expect funding costs to remain high. We expect net interest income to grow slightly to CZK2.1bn (+3.4% yoy). Successful sales of third-party products will increase fee income by +9.3% y/y to CZK0.7bn. According to our model, total operating income will reach CZK3.0bn (+7.0% yoy). Traditionally, regulatory fees are paid in the first quarter (e1Q24 CZK-200m). Total operating expenses will decline by 2.7% yoy to CZK1.5bn due to cost discipline. Operating income is expected to reach CZK1.5bn (+18.6% yoy). In contrast to 1Q23, when provisions were released, we estimate net provisions at CZK131m in 1Q24. This is the main reason why we estimate net profit to be almost unchanged at CZK1.2bn (-0.1% yoy).

Guidance for the full year: Moneta expects to achieve operating income of at least CZK12.4bn this year, and operating costs below or equal to CZK5.8bn. Operating profit should be CZK6.6bn or higher and net profit at least CZK5.2bn. Moneta estimates the cost of risk at 10-30bps. RoTE should be at least 17.0%.