Czech Prime Minister Petr Fiala has criticized the Czech National Bank (CNB) governor, Aleš Michl, for blaming the government for rising inflation in the country. Inflation has been a concern in the Czech Republic, with consumer prices rising by 15% year-on-year in March. Michl had previously commented on the impact of the government’s budget deficit on inflation, warning that if the government did not implement a credible consolidation package for public finances, the CNB might have to raise interest rates.

However, Fiala stated that it is the responsibility of the CNB to control inflation and that the governor should not blame the government for it. He emphasized that the primary responsibility for reducing inflation lies with the CNB and called for cooperation between the government and the central bank. The government is set to present a consolidation package in mid-May to reduce the country’s structural deficit by around 1% of gross domestic product (GDP), or approximately CZK 70 billion.

The debate between the government and the CNB over inflation highlights the tension between fiscal and monetary policy in the country. While the government has the power to influence budgetary policy through spending and taxation, the CNB is responsible for monetary policy, including interest rates and money supply. Some analysts argue that the root cause of inflation in the Czech Republic is the government’s fiscal policy, particularly its high level of spending.

Others, however, point out that inflation is a global phenomenon and that the Czech Republic is not unique in experiencing rising prices. They argue that the government and the CNB must take a coordinated approach to address the issue rather than blaming each other.

Inflation is a concern for policymakers in the Czech Republic and globally, as rising prices threaten economic stability and could lead to social unrest. While there is debate over the causes of inflation, most economists agree that a combination of factors, including supply chain disruptions, rising demand, and loose monetary policy, contribute to the problem. As governments and central banks worldwide grapple with the challenge of reducing inflation, we will likely see more debates like the one in the Czech Republic as policymakers seek to find the right balance between fiscal and monetary policy to address the issue.

Article by Prague Forum