No Reason for Food Price Increase in January, Says Analyst

Inflation could decrease slightly above three percent after the New Year, according to Radomír Jáč, the chief economist at Generali Investments. Jáč mentioned that he sees no reason for the 10 percent food price increase that retailers forecast in January.

The inflation hasn’t declined as quickly as the central bank had hoped. This disparity is attributed mainly to the prices of energy and food, which haven’t fallen as much as expected. However, November’s inflation is very close to the Czech National Bank’s (ČNB) forecast, with just a few tenths of a percent difference.

While inflation significantly and negatively surprised us a year ago, it’s no longer the case. Despite being well above the central bank’s target, Jáč believes the downward trend is clear. The slowing growth in prices throughout November across the consumer basket points to what might happen at the turn of the year, which remains a mystery to all.

The central bank had some assumptions about how regulated energy prices would evolve. They now say that steps announced by the Energy Regulatory Office align with expectations or that the increases are more minor. However, there’s a lot of discussion in the media daily about what will happen to electricity prices and how extensive the rewriting of New Year’s price lists for food will be. This could shake inflation expectations and consumers’ willingness to spend.

According to Jáč, there’s no reason for such significant price increases. Agricultural production prices have been falling very significantly for several months. Processing prices fell slightly year-on-year last month, yet food prices on shelves continue to rise. The answer to why prices are increasing is unknown, but the analysis should mainly target the processing industry and the final prices of traders.

Jáč still expects that by the end of next year, it will be approaching within sight of two percent, which is the ČNB’s inflation target. He believes real wages will rise next year, pulling consumption and economic growth. However, if essential new information is received at the beginning of the year or in the first half, they will unfortunately have to rewrite the forecast. The question remains whether the ČNB will proceed to lower interest rates as soon as December 21 or wait for January and February. At this moment, arguments for lowering interest rates this year slightly outweigh.