Inflation in the Czech Republic is accelerating. Food and service prices are increasing the most.
Everyone who goes shopping in supermarkets or visits restaurants complains about the price increases that have been occurring in recent months. Yet, the pace of inflation reached its peak so far this year in June. Consumer prices have increased by 2.9 percent year on year.
Compared to May, the annual inflation rate accelerated by 0.5 percentage point last month, according to the Czech Statistical Office. The prices of goods increased by 1.6 percent in June and the prices of services by five percent. The most significant price rises were for food and non-alcoholic beverages, at 6.2 percent. Price increases for meat were at 5.9, semi-skimmed long-life milk at 13.1 and butter even almost 25 percent.
"Inflation this year is mainly fluctuating due to the prices of food, beverages, and tobacco. This factor also accounted for the increase in June,"
wrote to the editorial office the Director of the Monetary Section of the Czech National Bank, Petr Sklenář.
According to economist Jana Matesová, the increase in food prices was influenced by the rising costs of inputs, i.e., agricultural crops often outside of the Czech Republic and Europe, for example, due to crop failure.
"Food processors have the right to say: Yes, our inputs have become more expensive. On the other hand, their energy costs have decreased,"
She explained recently on Czech Television.
As found by the Czech Statistical Office, the rent increase reached 6.3 and almost seven percent for holidays with comprehensive services.
Real Estate Bubble
Matesová is mainly disturbed by the rise in prices of new buildings in Prague. In this connection, she mentions that the price per square meter in the metropolis is three times what the average is in the rest of the republic.
"People put money into apartments, but it enormously drives up the rent for people who have to live in Prague,"
the economist adds.
On the contrary, the already mentioned energy prices dampened inflation when motor fuels decreased by 9.2 percent year-on-year, natural gas by 7.8 percent and electricity by 4.8 percent.
The Central Bank is on guard
The governor of the Central Bank, Aleš Michl, also spoke about the threat of inflation after the June meeting of the banking board. In the subsequent press conference, he emphasized that it is necessary to maintain a strict monetary policy at present, so that the Czech National Bank can ensure that inflation will move around the two percent target in the long term. According to Michl, there are currently noticeable risks in the economy related to the inertia of the growth of service prices and food prices.
"Inflation in services probably no longer has only a cost-related nature, but increasingly demand-related. And this is also the reason why the Czech National Bank cannot be at all satisfied with the development of inflation. So far, there are no signs of dampening the dynamics of this adverse inflation trend. Demand remains strong and does not create any barrier to price increases, whether it's housing or perhaps accommodation,"
stated for Czech Press Office the main economist of Bank Creditas, Petr Dufek.
The development of inflation according to analysts therefore also reduces the chances that the Czech National Bank would lower the basic interest rate from the current 3.5 percent in the third quarter. If the central bank makes this step this year, it will probably happen in November and the rate will only drop by a quarter of a percentage point, according to them.
Wage growth may eventually outpace inflation
Last month, despite the accelerated pace of price growth, the Czech Republic had the 24th highest inflation out of 41 monitored countries in a European comparison, thus standing in the same position as in May, according to an analysis by the investment platform Portus. Among neighboring countries, only Germany had a lower inflation rate, standing at two percent. In Austria, in the mentioned period, prices increased by 3.3 percent year on year, in Poland and Slovakia by 4.1 percent each.
According to the macroeconomic forecast of the Chamber of Commerce of the Czech Republic, inflation will reach an average of 2.5 percent this year and will slow down to 2.3 percent next year. According to the Czech National Bank, it will be only 2.1 percent next year.
The pleasing fact is that wages should realistically increase by 3.6 percent this year and 2.7 percent next year. In 2026, the real income of households should reach the level before the inflation wave of 2022 and 2023, as the chamber claims.
Inflation represents a problem for every economy. That's also why central banks try to keep it at low levels. However, this is not always successful. For the Czech Republic, the June results remain a warning. Price instability threatens not only our wallets, but also the future expectations of entrepreneurs and companies.
Sources: author's article, CZSO, CNB, CT, Czech Press Office, Portu
