Radomír Jáč, the Chief Economist at Generali Investments, anticipates a marginal decrease in inflation to slightly above three percent after the New Year. Jáč dismisses the forecast of a 10 percent increase in food prices in January, stating that he sees no valid reasons for such a substantial rise.

While the decline in inflation has not matched the central bank’s initial expectations, Jáč notes that the primary factors contributing to this disparity are the prices of energy and food, which have not decreased as much as initially anticipated. However, November’s inflation is in close alignment with the Czech National Bank’s (ČNB) forecast, with only a minimal difference of a few tenths of a percent.

In contrast to the surprise and negativity associated with inflation a year ago, the current situation indicates a clearer downward trend. Despite inflation being above the central bank’s target, Jáč observes a significant slowing in the growth of prices across the consumer basket throughout November, offering insights into potential developments at the turn of the year.

The central bank’s assumptions about the evolution of regulated energy prices have played a role in shaping inflation expectations. The Energy Regulatory Office’s steps are said to align with expectations or involve more minor increases. Nevertheless, ongoing discussions in the media regarding electricity prices and the potential rewriting of New Year’s price lists for food could impact inflation expectations and consumer spending.

Jáč emphasizes that there is no justifiable reason for substantial price increases. Despite a significant decline in agricultural production prices in recent months, food prices on shelves continue to rise. The analysis, according to Jáč, should focus on the processing industry and the final prices set by traders.

Looking ahead, Jáč expects that inflation will approach around two percent by the end of the next year, aligning with the ČNB’s inflation target. He foresees an increase in real wages, driving consumption and economic growth in the coming year. However, Jáč acknowledges that essential new information in the early months of the year could necessitate a revision of forecasts. The question remains whether the ČNB will opt to lower interest rates in December 2023 or postpone the decision until January or February, with current arguments slightly favoring a reduction in interest rates this year.

Article by Prague Forum