Recent deliberations among economists reveal ongoing apprehensions about potential overpricing in stores this January, even as projections for the inflation rate throughout the year indicate a considerable easing. Aleš Michl, the Governor of the Czech National Bank, anticipates a significant deceleration in the growth of consumer prices in the current year compared to the previous one.

As per the Czech National Bank’s latest forecast, the average year-on-year inflation is expected to decrease to 2.6 percent this year, a substantial decline from the 10.8 percent estimated for the previous year. Simultaneously, the bank foresees a modest economic growth of at least 1.2 percent, following a contraction of around 0.4 percent in the preceding year.

In a move to counter subsiding inflationary pressures and stimulate the economy, Michl justified the reduction of the base interest rate by a quarter of a percentage point to 6.75 percent in December. This marked the first adjustment in the CNB’s rates in the last year and a half. Another monetary meeting is scheduled for early February with the goal of bringing inflation down to two percent at the earliest.

While former central bank governor Jiří Rusnok criticized the New Year’s changes in value-added tax, projecting a potential destabilization of the price level, he also expressed an expectation of declining inflation in the current year. Rusnok highlighted that the sharp increase in energy prices for households experienced in January 2023 is unlikely to be replicated this January. His pre-Christmas estimate for average inflation in 2024 hovers in the three to four percent range.

Economists emphasize that cost pressures have already dissipated, providing no justifiable grounds for further price escalations. Vít Hradil, the chief economist of Cyrrus, pointed out that industrial producer prices stagnated last year, with noticeable declines in the agriculture sector. Given the subdued household consumption, companies are not compelled to raise prices unless there is a clear indication of customers’ willingness to pay more. This nuanced analysis underscores the complex dynamics influencing the inflation trajectory in the Czech Republic.

Article by Prague Forum