Rising inflation has shocked economists

People are digging deeper and deeper into their wallets because of record inflation, paying more for fuel, tobacco, and alcohol, for example. Consumer prices rose 3.4 percent year-on-year in July, the most since the first holiday month last year. The Czech Statistical Office (ČSÚ) reported that the most considerable influence on this development was again the rise in the price of cars and fuel.

“July inflation surprised economists with its vigor. In annual terms, it reached 3.4 percent, driven by the rise in services prices, including accommodation and food in restaurants. No one expected such a rise in consumer prices. In its current forecast, the Czech National Bank is working on estimating July inflation of three percent. As a rule, economists were expecting inflation to be below three percent, ” economist Lukáš Kovanda commented on the situation.

Beer and tobacco, for example, are also becoming significantly more expensive. “In the case of beer, there is an increase in wages for brewing workers, but also, for example, the price of packaging materials. Tobacco is becoming more expensive due to the continued increase in excise duty, ” he added.

Central institutions have been throwing money around

According to economists, the state has solved the covid crisis by giving away money and played its part in the price rise. “Central institutions have responded to the pandemic by throwing money around. At the same time, however, production capacity was suspended, which reduced the number of products on the market. We can not be surprised that inflation is now on the rise, ” says BHS chief economist Stepan Křeček.

“High inflation will liquidate purchasing power, savings in current and savings accounts in banks. Therefore, we can expect that people’s interest in investments will increase. Stocks, real estate, gold, or cryptocurrencies may be popular, ” he added.

On a year-on-year basis, the inflation rate reached 3.4 percent in July this year, which was 0.6 percentage points higher than in June this year. Inflation was above its tolerance band, which starts at three percent. Further interventions by the Czech National Bank in the form of interest rate increases can therefore be expected.

People whose incomes are not rising or are even falling will pay the most. Due to the expected rise in interest rates, the conditions for granting mortgages and other loans are likely to worsen. However, the increase in interest rates can not be expected to feed through significantly into interest rates on current and savings accounts. People will therefore have to invest their savings or accept a reduction in the purchasing power of their savings.