Oil prices to have knock-on effect on Czech economy

World oil prices fell slightly on Friday after the U.S. government moved to avert a fuel shortage and some oil operations resumed on the Gulf Coast. But it could be months before the global economy recovers fully from the damage wreaked by Hurricane Katrina, and that also affects the Czech economy. Rob Cameron has more.

Illustrative photo: archive of Radio Prague

Oil prices had reached record levels this week as the United States was stunned by one of its worst ever natural disasters. Crude oil prices on the New York Mercantile Exchange hit an all-time high of $70.85 per barrel on Tuesday, one day after Hurricane Katrina hit the coast. But on Friday they retreated 29 cents, and London Brent crude was also down.

High oil prices have a knock-on effect throughout the world, affecting every economy from China to the Czech Republic. And it's not just oil. David Marek, chief economist at Patria Finance, says the high prices will be felt in the Czech economy.

"It's not only an issue of dear oil. We can also see rising gas prices, coal prices, electricity prices. So the impact will be significant on inflation. Maybe inflation could be one percentage point higher compared to previous forecasts. So it's definitely something that could be involved in forecasting for next year."

But David Marek says in today's world the Czech government and Czech businesses have no choice but to be prepared for such shocks to the global economy.

"They must be ready, we don't have another way. It's something that we can't change. It's done by prices in world markets, so we must be prepared. If inflation is higher, the central bank must do something, firms must prepare for changes in interest rates and so on. We have a market economy. It's painful, but it's possible to solve."

Good news for Czech drivers though - the spiralling price of oil hasn't yet been transferred onto the customer at the petrol pump. The top-selling unleaded Natural 95 stood at an average of 29.46 crowns per litre, after rising 0.02 crowns this week, while diesel remained flat at 29.08 crowns per litre.