Czech economist and former representative of the Czech Republic at the World Bank, Jana Matesová, wrote a commentary discussing the responsibility for the high inflation rate in the country. The governor of the Czech National Bank recently accused the government of fueling inflation, while the prime minister retorted that the central bank’s primary obligation is to maintain price stability. However, the responsibility for inflation is not a simple matter of blame, as both institutions have roles to ensure economic stability.
According to the law governing the Czech National Bank, it is responsible for maintaining price stability, while the government is responsible for sustainable budget development. Both institutions have their work cut out for them, as the country has experienced double-digit inflation for more than 16 months now. However, the central bank bears the fundamental responsibility for the development of inflation, as it has the tools to curb it but has failed to do so for at least three-quarters of a year.
Matesová believes the high inflation rate in the Czech Republic is partly due to the unprecedentedly loose policies of central banks worldwide following the global financial crisis in the first decade of this century. These policies, which were supposed to end after two or three years, persisted for over a decade. Governments also implemented extraordinarily loose fiscal policies, initially to rescue banks in affected countries, then to finance rescue networks, support businesses, and stimulate economies during recessions, and again during the COVID-19 pandemic.
The Czech Republic has a significantly higher inflation rate than other developed countries. The country’s inflation rate is twice as high as Germany’s, despite having a similar industrial share. Furthermore, it is five times higher than some other countries to the country’s west, south, and north. The monthly price increase has been persistent, adding to the country’s economic woes.