ING expects Czech inflation to ease in 2026 as food price growth slows. Headline inflation is projected to be near 1% in summer, with core inflation easing in the second half of the year.
Core inflation is estimated at 3% year on year at the start of the year. Imputed rents rose 5.1% year on year in January, linked to price gains for new properties.
Inflation Split In January Data
Goods prices fell 0.4% year on year, while services prices rose 4.7% year on year. Ongoing services inflation is described as a reason the Czech National Bank may avoid looser policy even if headline inflation runs below target.
A single rate cut is assessed at about a 55% probability between May and August, versus 45% for no change. The base rate could be kept at 3.5% if the Bank holds.
A cut in May is possible if forecasts of softer core and services inflation are met. If policymakers wait for more data, the June or July inflation prints are expected to guide the decision, with July data available in early August.
We are seeing a clear split in the latest inflation data from January 2026. While headline inflation is comfortably low at 1.8%, core inflation has proven stubborn, holding at 2.9%. This persistence, especially with services prices rising at a 4.7% annual clip, is keeping the Czech National Bank on high alert.
Market Pricing And Policy Timing
This situation mirrors the caution we saw in the last quarter of 2025, when the central bank paused its easing cycle due to similar worries over wage growth and services. The CNB’s early February meeting confirmed this stance, with the board signaling no urgency to act despite a sluggish Q4 2025 GDP growth figure of just 0.3%. They are clearly prioritizing the inflation fight over providing an economic stimulus.
For derivatives traders, this creates a tricky environment where timing is everything. The market is pricing in roughly a 55% chance of a single rate cut between May and August, making it nearly a coin toss. This suggests that options pricing on the koruna, particularly around the May and June policy meetings, should reflect this heightened uncertainty.
The key takeaway is that the CNB feels no pressure to act, especially with the ECB signaling a more dovish path. This makes holding the koruna attractive for its interest rate advantage. We believe forward rate agreements might be pricing in too much easing, creating an opportunity for trades that bet on rates staying at the current 3.5% level through the summer.
