ČNB: Inflation will continue to rise

Photo: Kateřina Šulová, ČTK

January inflation rate will almost certainly exceed 7%, according to Czech National Bank (ČNB) board member Tomáš Holub, who believes this is only an optimistic estimate. Annual inflation rose to 6% in November from 5.8% in October and exceeded the ČNB’s forecasts by 1.1 percentage points.

Holub described January as an important month because companies and traders are making new price lists. “It is now almost certain that inflation will cross the 7% level. I don’t dare to guess at the present moment how high it will rise above this, “he commented.

Holub described the annual estimate of 7% as the most optimistic figure in the current situation, given the expected rise in energy prices. However, he considers the predictions of analysts that expect a 10% inflation rise to be exaggerated. “A realistic anticipation could be a rise of up to 8%,” Holub noted.

According to the central bank’s estimates, the inflation rate is expected to decline in the second half of next year. “I believe, in particular, that our predictions for the second half of 2022 will be fulfilled when we expect inflation to go down quite quickly,” Holub added.

The Czech National Bank’s base interest rate could reach 4% next spring. Currently, the base interest rate on commercial loans is 2.75%. At the upcoming December meeting, Holub would favor raising the base rate by more than 0.5 percentage points.

Raiffeisenbank economist Helena Horská said she expects a 0.75 percentage point increase at the board meeting on December 22. She justified this by underlining that the ČNB’s previous forecast had assumed lower inflation, slower consumption growth, and stronger CZK than the current situation. “We will have rates of more than 3% under the Christmas tree,” Horská admitted. 

In early November, the bank board surprisingly raised the base rate by 1.25 percentage points to 2.75%. It was the most significant rate hike since 1997. The main reason for the rate rise was rising inflation. Earlier, at the end of September, the council raised the base rate, the interest rate on commercial loans, by 0.75 percentage points to 1.5%.