Czech economist Jana Matesová has written a commentary addressing the responsibility for the high inflation rate in the country, sparking a debate between the governor of the Czech National Bank and the prime minister. Matesová argues that assigning blame for inflation is not a straightforward matter, as both institutions have specific roles in ensuring economic stability.

According to the law governing the Czech National Bank, its primary responsibility is to maintain price stability, while the government is tasked with sustainable budget development. However, the country has been experiencing double-digit inflation for over 16 months, and the central bank bears a significant responsibility for addressing this issue.

Matesová points out that the loose policies implemented by central banks worldwide after the global financial crisis in the early 2000s have contributed to the high inflation rate in the Czech Republic. These policies, initially intended as short-term measures, persisted for over a decade. Additionally, governments implemented loose fiscal policies to support struggling banks, finance rescue networks, stimulate economies during recessions, and provide relief during the COVID-19 pandemic.

Compared to other developed countries, the Czech Republic has a notably higher inflation rate. Despite having a similar industrial share as Germany, its inflation rate is twice as high. Moreover, it is five times higher than neighboring countries to the west, south, and north. The persistent monthly price increases have exacerbated the country’s economic challenges.

To address the issue of inflation, Matesová suggests that the Czech National Bank needs to utilize the tools at its disposal to curb inflationary pressures. This would require implementing appropriate monetary policies and measures to promote price stability. At the same time, the government should focus on implementing sustainable budget development strategies to support long-term economic stability.

In conclusion, the responsibility for the high inflation rate in the Czech Republic is a shared one between the central bank and the government. Both institutions play crucial roles in maintaining economic stability, and it is essential for them to collaborate and implement effective measures to address inflationary pressures. By striking a balance between monetary and fiscal policies, the Czech Republic can work towards achieving price stability and ensuring sustainable economic growth.

Article by Prague Forum