Matt Atlas

Czech Inflation Climbs Higher Than Expected In July, Rate Hikes Likely

July year-on-year inflation was above market expectations and supports the scenario of further growth in Czech National Bank interest rates. Analysts contacted by ČTK agreed on this. According to them, inflation will not return below three percent in the coming months, on the contrary, it will approach four percent at the end of the year. Consumer prices rose by 3.4 percent year on year in July, the highest since last July, the Czech Statistical Office (CSO) said today .

“Central institutions responded to the pandemic by spreading money to all parties. At the same time, however, production capacity was suspended, which reduced the number of products on the market. According to him, high inflation will liquidate the purchasing power of savings on current and savings accounts in banks. He therefore expects people’s interest in investment to increase. Popular can be stocks, real estate, gold or cryptocurrencies, he added.

“Czechs have to prepare for inflation they have not experienced in a long time. It will be even worse for them to now experience significant inflation with very low-interest bank deposits,” agreed Trinity Bank analyst Lukáš Kovanda. Time forces people to invest. He often warned, even at very high risk, for example in dubious corporate bonds. Thus, the enormous interest of Czechs in investing in real estate will continue. “However, as inflation rises, so will CNB rates and mortgage rates. A bitter combination of further rising real estate and rising mortgages will make their own housing inaccessible to new crowds of Czechs,” he said.

The year-on-year comparison is problematic in this year-on-year disproportionate time, says Natland Group analyst Petr Bartoň. “Prices of services are driven by seasonal holiday prices, but in autumn and winter autumn and winter prices will rise again. There was minimal bankruptcy in industry. to catch up with the missing income from the time of lockdowns, or to repay the debts that the lockdowns financed, “Bartoň explained. Prices will continue to rise as material prices rise even more. So far, it is reflected “only” in fuel prices, which are closest to the consumer basket measuring inflation, he added.

Václav Loula from the Czech Association of Petroleum Industry and Trade (ČAPPO) told ČTK today that the reason for the rise in the price of petrol and diesel in the Czech Republic is primarily the rise in oil prices. According to him, however, this trend has not yet been reflected in diesel consumption in particular. In May, the most recent data of the association, 434 million liters of diesel were consumed in the Czech Republic, which was not only more than in May of covid year 2020, when it was 394 million liters, but also more than in May 2019 and 2018. At that time, consumption diesel in the Czech Republic amounted to 431 million liters and 426 million liters of diesel, respectively.

Overall, inflation will exceed three percent this year, leaving it outside the CNB’s tolerance band for the whole year, Kovanda estimated. According to him, it will be up to four percent by the end of the year. The CNB will probably have to double its key interest rate twice before the end of the year this year in order to try to cool inflation, he said.

The inflation rate in the euro area reached 2.2 percent in July and returned to the growth of previous months after a slight slowdown in June. In Germany, year-on-year consumer price inflation accelerated to 3.1 percent in July from 2.1 percent in June, bringing inflation to a 13-year high.