Inflation of services remains elevated

In all CEE countries, headline inflation has fallen to below 5% recently. At the moment, Czechia and Poland experience inflation increases due to regulatory changes or base effects. These should fade out in the course of 2025 and inflation should decline further towards the end of the next year. Today, we zoom in on the quite striking difference between inflation of goods and services. During the pandemic, in face of shortages driven by the supply problems, the inflation of goods skyrocketed. It has dropped though and has been recently comparable to pre-pandemic development. Since the beginning of the year, and in the aftermath of inflation shock, it is inflation of services that is visibly higher than inflation of goods. It is related to very dynamic wage growth in the private and public sectors. The inflation pressure stemming from the services sector should ease, however, in the coming year as nominal wage growth is expected to decelerate. Weaker-than-expected economic growth in several countries is a disinflationary factor. It should thus support the downward trajectory of headline inflation across the region. On the other hand, tight labor market favors more dynamic wage growth.