Economist warns of social impact as Czech inflation nears 10 percent

Further confirmation that prices in the Czech Republic are rocketing came with the news on Monday that inflation reached 9.9 percent in January, following the sharpest month-on-month jump ever seen in the country. I discussed the inflation situation with Lukáš Kovanda, chief economist with Trinity Bank, who said there were multiple causes.

“It’s first of all because of pretty high core inflation.

“Core inflation is inflation without energy prices or food prices, so it’s without volatile prices, which is more, let’s say, fundamental.

“This type of inflation is very high in the Czech Republic compared to other countries in the European Union.

“We have many sources of rapid inflation: housing prices, energy prices, food prices, so the price increases have been pretty broad.

“And it’s quite difficult to find an item that is not increasing in price.”

These numbers seem so high. Everybody I guess will be almost shocked to hear the figure of nearly 10 percent. But which sections of the population will feel these price rises the most?

“There is a problem with this inflation compared to last year, because last year it was a rather different type of inflation, in terms of its social impact.

Lukáš Kovanda | Photo: Khalil Baalbaki,  Czech Radio

“Last year it was inflation of, for example, materials for construction, or cars, which are items you can skip as a household if you really don’t have the money or are without a job or something.

“But this year it’s more dangerous from the social point of view, because when for example the prices of food go up, you cannot skip it and you have to buy food even for the increased prices.

“So this year the inflation may be even more damaging than last year.

“From this point of view, I think it will be quite a challenging period ahead for the current government.

“Maybe we will see some measures taken, like for example in Poland, where the government lowered VAT on food and oil and some other stuff.

“So we may see recommendations or suggestions to do something similar, because of course inflation is very unpopular for any government.”

What’s the outlook for the rest of the year? This is a bad start in terms of inflation, but how could things look perhaps in the second half of 2022?

“We may see an improvement of this situation.

“I think we will get more than 10 percent inflation for the month of February, so the numbers in March, next month, will be even higher than today.

“Then we will see a quite gradual decline of the inflation rate, and we may get to the target, or 2 percent, next year, but probably in the second half of next year.

“This year average inflation will be around 8.7 percent, so it will be the highest inflation not just for one month but for the whole year since the 1990s.”