Czech inflation this year may be highest since 2008

Photo: Lenka Žižková

Inflation in the Czech Republic remains high and the rate for 2020 may well be the highest recorded since 2008. Analysts contacted by the Czech News Agency said inflation could be above 3 percent this year and was unlikely to fall back to 2 percent until 2021.

According to data published on Thursday by the Czech Statistical Office, year-on-year growth in consumer prices in the Czech Republic slowed to 3.3 percent in August from 3.4 percent the previous month.

Year-on-year inflation last month was fully in line with market expectations, Radomír Jáč, an analyst with Generali Investments, told the Czech News Agency.

It remains well above the Czech National Bank’s 2 percent inflation target.

Although inflation is expected to fall to 2 percent, especially during 2021, its current development speaks against further cuts in interest rates by the Czech National Bank, Mr. Jáč said.

Photo: Khalil Baalbaki / Czech Radio

Inflation has been well above the central bank’s target for a long time, which has caused a real decline in the average wage, said BHS chief economist Štěpán Křeček.

He warned that this combined with a jump in unemployment in the autumn could represent a “tragic cocktail” for the Czech economy.

According to ČSOB analyst Petr Dufek, consumer prices have not changed in the last month. Although some goods went up in price, others became cheaper, meaning the two balanced each other out.

Compared to July, some foodstuffs and seasonal fashion were cheaper. However, people had to reach deeper in their pockets to pay for fuel, new cars and holidays, Mr. Dufek said.

There is no reason for the exchange rate of the Czech crown to react to the data published today, said Michal Brožka, an analyst at Komerční banka.

The rate remains close to the level of CZK 26.50 to EUR and this level is expected for the fourth quarter of this year, he said.

Mr. Brožka said he expected inflation to decelerate in the coming months and to end on average slightly above 3 percent for the whole year.

There is a risk of it undershooting the CNB’s inflation target next year due to weakened domestic demand, he said.

ING Bank analyst Jakub Seidler told the Czech News Agency that the central bank expected inflation of 3.4 percent for the whole of this year; this would be the highest full-year inflation since 2008, when it reached 6.4 percent.

However, ING’s inflation forecast suggests it will slow to 2.4 percent next year, he said, adding that it could slow even more significantly, as this year’s high base effect will be reflected.

That said, the extent to which the coronavirus crisis will have an impact on inflation in the coming quarters remains relatively uncertain, Mr. Seidler said.