Economist sees “very difficult time” for low income families in 2022
Rising prices are causing great concern in the Czech Republic at present. While inflation was at 3.4 percent in July, experts are saying it will reach at least 7 percent at the start of 2022. What is the reason for this? And how bad can things get? I spoke to Jan Bureš, chief economist at Patria Finance.
“There are several factors behind the inflation increase.
“Part of them are domestic. We saw a pretty dramatic increase in prices connected with living, called ‘imputed rent’.
“Besides that, there are several imported price pressures, such as energy prices or fuel prices, which are slowly getting into the consumer basket and will contribute to further acceleration of the consumer price index at the end of this year and the beginning of the new one.
“I expect inflation to reach roughly 8 percent at the beginning of the new year.”
And do you expect things will improve after that?
“There’s huge uncertainty connected with inflation outlook.
“There was one always, but this time the uncertainty is unprecedented.
“First of all we don’t know how much the energy prices will increase for Czech households at the end of this year and the beginning of the new one.
“Secondly, we don’t know how long the disruption in supply chains will persist.
“That will have a dramatic impact on how high we will go in terms of inflation.
“I could potentially imagine even higher inflation at the beginning of the year, if energy prices continue to go up.
“But in a base scenario, I would expect inflation to decline to roughly 5 percent in mid-2022 and a bit more in the second half of the year.”
Perhaps this is a naive question, but the incoming Czech government are saying that they’re going to cut spending. Could that ultimately help the situation?
“No, not at all.
“I think the government has no impact on the current inflation wave.
“The only thing that can be done from a policy-maker point of view is that the central bank policy – tighter monetary policy can prevent inflation from turning into a one-off episode to a kind of permanent state of how the economy is evolving.
“So monetary policy can be efficient in fighting inflation, but fiscal policy, governmental policy, can do nearly nothing.
“Severe budget cuts I think, on the other hand, could do more harm than good, because there will be a need to offset the impact of higher inflation on especially low income households.”
We’re hearing a lot about energy prices next year and how they’re going to shoot up. Do you think 2022 will be a painful year for a lot of Czech households?
“Low income households will truly face a very difficult time, because the impact of higher inflation, especially energy inflation, is going to hit their budgets disproportionately.
“I’m afraid especially about those roughly two million people who earn less than 70 percent of the median wage.
“They usually have very low assets and savings and very low budget flexibility.
“And therefore they can get into quite difficult situations.
“From a policy-maker point of view, I would expect the government to include the mitigation of the inflation wave on those families into strategy.”