In January, Czech Republic inflation increased to 3.6%. This topped all expectations, and was mainly driven by higher prices for food, housing, tobacco and alcohol. In the next few months, inflation could go a bit higher but it should start to subside from the second quarter. The CNB’s response to the January print will probably be to keep the key rate at the current level.

In January, Czech Republic inflation increased to 3.6%. This topped all expectations, and was mainly driven by higher prices for food, housing, tobacco and alcohol. In the next few months, inflation could go a bit higher but it should start to subside from the second quarter. The CNB’s response to the January print will probably be to keep the key rate at the current level.

In January, consumer prices increased by 1.5% month-on-month, and year-on-year inflation jumped 40bp to 3.6%, which was 20bp above our estimate, 30bp above the Czech National Bank’s forecast and 40bp above market expectations. The yoy figure is the highest since March 2012.

Prices went up in December mainly due to food, housing and energy. Prices of alcohol and tobacco increased on the back of higher excise taxes, which should also push prices of these items higher in the next few months. According to our estimate the core inflation accelerated to 2.7% in January, which was faster than the 2.4% we were forecasting. Housing rent prices increased by 1.3% mom and their yoy growth reached 4.2%. Indeed, the yoy growth in inflation was driven mainly by housing and food prices.

For this year, we expect inflation to average 3.0 %. The price development in January does pose the risk of inflation being slightly higher than our forecast for the year as a whole. Nevertheless, prices are likely to increase most in the first quarter and then subside significantly.

As confirmed by the GDP data today, economic activity has weakened, and gradually the inflationary pressures should weaken as well. The stronger CZK and higher interest rates should also push inflation down to lower levels. For the beginning of next year, we forecast inflation at close to 2%.

In the eyes of the CNB, the currently elevated inflation justifies the recent increase in the interest rates. Without rounding, the year-on-year price growth printed at 3.64%, so very close to meeting the 3.7% CNB inflation forecast for April. Nevertheless, the slightly higher-than-expected inflation print for January is not sufficient reason for another rate hike in our view.

Avast shares lost 9.3%(CZK138) yesterday (28 January 2020). This was because Avast sells browser data. This was to be done through the Avast Jumpshot subsidiary. Customers gave their consent, and Jumshot processed the data and sold it to third parties. The data was anonymous, so it was not personal information such as email addresses or names.

Avast shares lost 9.3%(CZK138) yesterday (28 January 2020). This was because Avast sells browser data. This was to be done through the Avast Jumpshot subsidiary. Customers gave their consent, and Jumshot processed the data and sold it to third parties. The data was anonymous, so it was not personal information such as email addresses or names.

We believe this is not new information. This has been on the market since last year, when it was first discussed. In addition, according to the statement, Avast has taken action and since last December has completely abolished the use of data for any purpose other than security applications, including sharing with its subsidiary Jumpshot. This means that since December, browser data is not used / sold. From our point of view, the issue is resolved and will not be repeated.

Impact on forecasts, target price and recommendations: We do not think this report affects the fundamentals of the company, which in our view remain unchanged. Moreover, the impact on the company is rather limited. Jumpshot's revenue is around 5% of Avast's total revenue. We leave the target price and Buy recommendation intact.

In our opinion, the investors' reaction is exaggerated. However, given the potential reputational risks, negative sentiment could still persist.