Czech Prime Minister Petr Fiala’s recent characterization of June’s 9.7% inflation rate as “good news” has faced sharp criticism from economists. According to an analysis by investment platform Portu, Czech inflation ranked ninth highest among 41 European countries in June, marking a four-place drop from the previous month.

Fiala attributed the decline in inflation to the government’s measures aimed at curbing it, including reducing energy prices, pressuring supply chains to lower prices, and implementing government savings to improve public budgets.

However, economists argue that the decrease in inflation was primarily driven by external factors rather than government actions. They point to significantly lower wholesale energy prices and the high comparative base from the previous year as the main contributors. Lukáš Kovanda, the chief economist at Trinity Bank, emphasized the international influences on inflation, such as the sharp decline in stock prices of gas and electricity in the EU and the drop in oil prices. He also highlighted the statistical impact of higher year-on-year comparison bases.

Moreover, economists contend that the government’s actions had minimal effect on inflation. Petr Dufek, the chief economist at Bank Creditas, stated that inflation decreased solely due to the comparative base and not because of lower prices of goods and services. He believes there is potential for more substantial inflation reductions driven by factors such as a strong currency, declining international transport costs, and cheaper raw materials and energy. Despite the Czech Republic having the most subdued demand among EU countries, Dufek notes that this price decrease has yet to be observed in stores.

Economist Vít Hradil from Cyrrus further criticized the government’s approach, arguing that there is no evidence to suggest that pressuring supply chains and improving public budgets have had a proven impact on reducing inflation. He noted that increased media coverage of price trends in these segments, fueled by the government’s rhetoric, may have bolstered customer assertiveness and led to slower price growth.

Despite the decline, Czech economists underscore that inflation remains twice the EU average and that further improvements are necessary. They maintain that the government’s efforts had limited influence on inflation, largely due to external factors. As the country grapples with persistent high inflation, economists call for a comprehensive approach that addresses both internal and external factors to achieve meaningful inflation reduction.

Article by Prague Forum