Inflation rose to 17.5 percent

Consumer price inflation accelerated in January. Year-on-year inflation rose to 17.5 percent in the first month of the year from 15.8 percent in December. On a month-on-month basis, inflation rose by six percent. The Czech Statistical Office (CSO) released the data on Friday.

“The growth was significantly affected by the ending of the energy saving tariff for households in the form of an energy allowance. The prices of electricity increased by 36.4 percent year-on-year, natural gas increased by 87 percent, water charges increased by 16.3 percent, sewerage charges increased by 30.3 percent, and heat and hot water increased by 44.7 percent,” said Pavla Šedivá, head of the consumer price statistics department at the CSO.

Rising food prices

The rise also influenced the year-on-year growth in the price of food and non-alcoholic beverages. For example, the cost of rice increased by 35.1 percent, flour by 44.2 percent, pork by 36.8 percent, semi-skimmed long-life milk by 39.5 percent, eggs by 85.0 percent, oils, and fats by 31.5 percent, and sugar by 84.7 percent.

Also contributing significantly to the month-on-month increase was the end of the austerity tariff. The price of electricity rose by 139.8 percent compared to December. Heat and hot water consumption rose by 23.5 percent, sewerage by 30.3 percent, and water charges by 16.3 percent. Natural gas was “only” 2.2 percent more expensive.

Among foodstuffs, the prices of soft drinks, in particular, rose by 7.6 percent. The cost of fruit rose by almost a tenth, while the price of vegetables rose by 7.3 percent. Significant price increases also occurred for spirits (+9.2 percent), beer (+8.9 percent), and wine (+8.5 percent).

On the other hand, fuel and oil prices were lower than in December, falling by 1.7 percent. Cars were 1.1 percent cheaper. Among foodstuffs, the prices of butter, down 7.2 percent, and semi-skimmed long-life milk, down 7.1 percent, were notably lower, the statisticians added.

Overall, prices of goods rose by 8.7 percent, and services expenses grew by 1.9 percent.

Analysts had expected a significant increase in inflation precisely because the effect of the energy-saving tariff was dropped from the statistics. The traditional January adjustment of price lists for goods and services was also expected to play a role.

Analysts: Summer in single digits

“While administrative interventions tweaked inflation in the final months of last year, these were ended in January, leading to a jump in prices. In addition, some traders opted for a strategy of selling less with higher margins, which was reflected in the revaluation at the beginning of the year,” BHS chief economist Štěpán Křeček assessed the January figures.

He also pointed out that higher inflation was being prevented by the strong exchange rate of the koruna, which was making imports into the Czech Republic cheaper and thus dampening imported inflation from abroad. “We expect inflation to fall in the coming months and reach single-digit levels during the year. However, it will still reach multiples of the inflation target,” Křeček added.

Akcenta analyst Miroslav Novak also said inflation could reach single-digit levels in the summer. However, he warns that the high inflationary environment in the domestic economy continues to persist.

“It is necessary to consider that very high inflation will negatively impact household incomes and consumption throughout this year. The ČNB Bank Board will no longer raise interest rates, but on the other hand, we will probably wait until the very end of this year for rates to fall,” Novák said.