Surprising Inflation Rise: Czech Economy Takes a Hit

A surprising surge in inflation has hit the Czech Republic, with consumer prices accelerating faster than expected. According to data published by the Czech Statistical Office (CSO), the year-on-year inflation rate for April rose to 2.9% from 2% in March. More expensive food and fuel prices were the primary contributors to this inflation surge.

Pavla Šedivá, the head of the CSO’s consumer price statistics department, highlighted that “the acceleration of the year-on-year growth of prices to almost three percent in April was mainly due to the rise in prices of food, alcoholic beverages, and fuels.” Most notably, prices in the housing sector played a significant role in the annual price growth. Rent increased by 7.2%, water and sewage charges by more than a tenth, and electricity by 12%. Conversely, natural gas prices fell by nearly six percent.

Furthermore, compared to last year, the prices of spirits increased by 10.4%, wine by 5.5%, and beer by 6.5%. The increase in fuels and oils was 8.4%. The CSO also noted that the prices of food and non-alcoholic beverages, which significantly impact the overall price level, decreased by 2.7%.

Selected food items saw more than a 19% drop in flour prices, semi-skimmed long-life milk was cheaper by 11.4%, and eggs by 15.5%. On the other hand, vegetable prices increased by 2.4%, and chocolate by more than nine percent. In a month-on-month comparison, consumer prices increased by 0.7%. Non-alcoholic beverages (+2.8%), pork (+4.6%), and vegetables (+2.3%) were among the items that saw a significant price increase.

In response to the inflation data, the koruna strengthened against the euro by 0.3% to 24.8 CZK/EUR. “Interest rates will go down slower. The market’s expectations for the pace of interest rate cuts by the CSO did not change after today’s inflation. The CSO has already cooled down assumptions that rates would go down quickly. Czech central bankers will likely continue to be cautious, and the easing of monetary conditions will be slower,” said Tomáš Volf, an analyst with Citfin.